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Queensland Economic Advocacy Solutions

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We have lower wages in Queensland and there is a good reason why

There has been extensive research into the relationship between wages and inflation or the change in the cost of living.  For example the 'wage price spiral' theorises that as wages rise, costs to the employer have to be recovered and are passed onto the consumer through raising the price of goods and services thereby fuelling inflation.  In turn as inflation builds employees push for higher wages to compensate for the cost of living increases.  This creates a reinforcing spiral.

However what has not been extensively documented is the strong nexus between wages and the actual cost of living (not the change but the dollar amount), which is what I want to discuss in this blog.

From time to time various occupational groups pursue wage claims based on the notion of parity.  Simply put, wage parity means that wage or salary levels for a given occupation in one state should be equal to those in another state as the work being performed is no different.  It is natural to perhaps ask .... why should workers in one State be paid more or less than similar workers in another?  

Whilst wage parity is superficially an attractive proposition, there are a number of reasons including supply and demand, lifestyle and cost of living considerations as to why wage levels vary across regions.  The fact that an employee is doing the same work in Queensland as elsewhere is only a small part of the equation.

From an efficiency point of view, wages for all occupational groups should be determined predominantly by the law of supply and demand, a law which determines the price of virtually all goods and services in Australia.  Indeed many employers will tell you that they pay well above the award rate of pay.  The extent of the above award payment is linked to skill / labour shortage or availability.

Wage rates and salaries in Queensland across virtually all employment categories are invariably below those in New South Wales for example.  ABS confirms that average weekly total earnings for all employees in Queensland are approximately 6 per cent below New South Wales.  Similarly, average ordinary time earnings for full-time employees in Queensland are approximately 3 per cent below those in NSW.  However Queensland should never apologise for the fact that earnings within the Sunshine State are generally below those south of the Tweed.  It is one of the many competitive advantages to locating in Queensland but thats a separate story. 

A major determinant of wage levels aside from supply and demand is the cost of living.  Queensland, apart from having a lifestyle second to none, also has a significantly lower cost of living than NSW. According to the Australian Bureau of Statistics (ABS), household expenditure in Queensland has consistently (over decades) been 10 per cent lower than in NSW.  Key items which are significantly less expensive in Queensland are housing, food and recreational expenses for example.

The lower cost of living in Queensland is a direct explanation for the State’s wage and salary levels generally being below those in New South Wales.  Quite simply wages in Queensland don’t need to be as high as those in NSW because our cost of living is significantly cheaper.  

It is no coincidence that States with higher cost of living also have a higher average earnings and vice versa.  The below table demonstrates that there exists a positive correlation between the cost of living and earnings.  The higher the cost of living within a State the higher the earnings paid.

 In summary the notion of wage parity, if extended widely, has the potential to severely damage the Queensland economy.  It is estimated that to bring Queensland wage levels across the board up to those in NSW would cost the State at least $9.5 billion per annum - an impossible burden for individual employers and the State economy to bear.

Indeed they could not possibly absorb this amount and would be forced to pass it on to consumers in the form of higher goods and service prices.  This as stated in the first paragraph would give rise to inflation and we would in the fullness of time end up with a cost of living equal to that of New South Wales.  In short 'wages chase prices' and 'prices chase wages' and as a consequence employees, unions, employers and the Government should be cautioned to exercise proper restraint in requesting and responding to ‘wage parity’ claims. 

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Thanks Nick. Interesting post. I agree regarding the need to exercise restraint in wage parity claims. Regarding Qld's lower wages, I'd say the underlying determinants are the skills/education gap with NSW/Vic and the industry mix (i.e. Qld's branch office economy) - i.e. factors affecting labour productivity.



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