Here's an easy way to get a larger pay increase in Australia

Utopia. Working Dog Productions. Australian Broadcasting Corporation. Source: IMDb
  • Last year, Australian public sector wages increased by 2.44%, outpacing growth of 1.93% for private sector workers.
  • Australian public sector wages have been growing significantly faster than private sector wages over the past two decades.
  • Australian public sector employment grew by 7.6% in the year to November 2017, near triple the 2.6% increase in the private sector.

Australian wage growth has been pretty atrocious over the past few years, particularly for private sector workers.

Any number of theories have been put forward to explain the recent weakness: low inflation is one popular factor often cited, as is elevated levels of underutilised workers in the workforce as it has progressively become more “casualised”.

Others point to technological change, increased globalisation, job insecurity fears and the decline of union membership in Australia.

The reality is there is no one reason why wage growth is so subdued.

However, while policymakers, economists and academics all grapple to find the answer, for the average Australian worker, what they really want to know is how they can snag themselves a hefty pay rise?

While things like networking, obtaining improved qualifications and looking for work in fast growing industries are often touted as pathways to getting larger and faster pay increases than the average worker, perhaps there’s an easier way to get ahead: join the public sector.

As seen in the chart below from the Commonwealth Bank, public sector hourly pay rates have increased significantly faster than those for private sector workers over the past two decades.

Source: Commonwealth Bank

Gareth Aird, senior economist at the Commonwealth Bank, describes the pay gap between the public and private sectors during this period as “quite astonishing”.

“What is striking is that the spread between public and private sector wages growth has been positive for most of the past 20 years,” Aird says.

“The annual rate of change in the public sector wage price index (WPI) has been above that of the private sector for 56 of the past 78 quarters.

“This is quite astonishing”.

Over the past two decades, the average difference between public and private sector annual wage growth has been 34 basis points.

While such a gap doesn’t seem overly large for just one year, that near-constant outperformance adds up when compounded over the course of two decades.

“The compounding impact is large,” Aird says.

He puts the disparity down to increased union membership across Australia public sector.

“[It suggests] that the more unionised public sector workforce has more collective bargaining power than the much less unionised private sector,” he says.

While that may explain the pay gap between the public and private sector, Aird says “it is very hard to make a justification for this disparity over such a long period of time”.

Along with higher pay increases, on average, over the past year, another carrot for those Australians considering joining the public sector is that it’s been hiring aggressively over the past few years in comparison to the private sector.

Source: Commonwealth Bank

In the year to November 2017, public sector employment rose by 7.6%, far outpacing that in the private sector which grew 2.6% over the same period.

“From an industry perspective, the big lift in public sector employment over the past two years has been in health (63,000), driven in part by the NDIS, education (59,000) and admin, safety and IT (24,000),” Aird says.

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