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Impact of the increase in the Superannuation Guarantee on wage costs in the health sector. Australian Labour Market Research Workshop, 29-30 November 2012. Marcia Keegan and Laurie Brown National Centre for Social and Economic Modelling. Introduction. Superannuation and the increase in the SG - PowerPoint PPT Presentation
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Impact of the increase in the Superannuation Guarantee on wage costs in the health sectorAustralian Labour Market Research Workshop, 29-30 November 2012
Marcia Keegan and Laurie Brown
National Centre for Social and Economic Modelling
Introduction
• Superannuation and the increase in the SG
• Health system in Australia
• Theoretical framework
• Increase in labour costs as a result of the increase in the SG
• Overall impact on labour market
Changes to the Superannuation Guarantee
• Gradual increase from 9% to 12% over seven years
• Officially, cost is borne by employers
• Gradual increase has been designed so that employers can pass on increase in SG to employees through lower wage rises
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
9.00% 9.25% 9.50% 10.00% 10.50% 11.00% 11.50% 12.00%
Possible impacts on the health sector?
• Acute and psychiatric hospitals across Australia collectively have multi-billion dollar budgets
• Public hospitals:● 735 acute, 17 psychiatric● $33.7 billion recurrent expenditure● $21 billion in wage and salary payments
• Private hospitals● 302 day facilities, 279 private acute and psychiatric hospitals● $8.4 billion recurrent expenditure● $4.3 billion salary payments (including on costs)
State and Federal health costs with 12% SG
• The vast majority of public hospital funding comes from State and Federal government sources
• A minority of private hospital funding comes from government sources
• Note that even those private sources can be government subsidised
• Will the increase in the SG increase the (very large) wage bills of public and private hospitals, thus increasing burdens on State and Federal governments?
Data sources
• Public hospitals● Australian Hospital Statistics (AIHW)
– 2005-06 to 2010-11– Average staff salary (ex super) $87 090 (2010-11)– 263 623 FTE staff
• Private hospitals● ABS Private Hospitals Report● Average staff salary (ex super) $77 150● 55 053 FTE staff
Assumptions
• 3% pa growth in FTE staff numbers per annum
• 5% pa growth in nominal staff salaries
• All employees are entitled to SG
• Contractors engaged by hospitals are not entitled to increased payments as a result of increasing SG
• Hospitals already paying more than the minimum SG (eg ACT, Tas) will increase their superannuation payments as the SG increases
How do employers/employees value super compared to wages?• As far as employers are concerned, a dollar paid in
superannuation is the same as a dollar paid in wages● S = W
• Most employees will prefer a dollar in wages to a dollar in super:● S = W (employees are indifferent to an extra dollar of super or wages)● S = 0 (employees place no value on additional super)● 0 < S < W (an extra dollar of super is valuable to the employee, but less
valuable than an extra dollar of wages)
• 0 < S < W is most likely, but we do not know the value of S relative to W
Impact on the labour market
• Immediate effects of increasing SG:● Employers grant lower nominal wage rises than would be case if SG did
not increase, overall costs remain the same● Employees receive lower growth in wages than they would usually
expect, and additional SG payments do not fully compensate them for this loss -> wage cut
• Wages fall
• Employment declines, but less than wages
Do employers feel the full brunt of 12% SG?
• Most of the cost of the increase in the SG will be borne by employees:● Employees generally place some value on superannuation, even if S <
W● Labour supply is less elastic than labour demand
• Consider the change in the subjective value of employees’ remuneration packages under the increase to 12% SG if:● S = 0.2*W● S = 0.8*W
Change in subjective value of average total remuneration package for public hospital employees (wages + subjective value of super)
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
S = 0.8*W Value of total package, 9% SG
100,979
105,018
109,219
113,587
118,131
122,856
127,770
132,881
Value of total package, 12% SG
100,979
104,969
109,117
113,375
117,800
122,398
127,174
132,137
Decline (%) 0.05% 0.09% 0.19% 0.28% 0.37% 0.47% 0.56%
S=0.2*W Value of total package, 9% SG
95,892
99,728
103,717
107,866
112,180
116,667
121,334
126,187
Value of total package, 12% SG
95,892
99,532
103,309
107,018
110,858
114,834
118,950
123,212
Decline (%) 0% 0.20% 0.39% 0.79% 1.18% 1.57% 1.96% 2.36%
Impacts on labour supply and demand
• S = 0.8*W● Reduction in FTE positions by 0.11% by 2019-20 compared to the SG
remaining at 9%● 323 public hospital FTEs and 75 private hospital FTEs are lost● Annual cost to hospitals is $150 pa per employee
• S = 0.2*W● Reduction in FTE positions of 0.44% compared to the SG remaining at
9%● Around $600-$700 per employee in additional costs
Findings
• By 2019-20, the increase in the SG is expected to add $1.394bn to the superannuation costs of public acute and psychiatric hospitals and $258 million to the costs of private hospitals
• In general, public and private acute and psychiatric hospitals should be able to pass on the vast majority of these costs to employees through lower wage rises
• The slow rate of increase in the SG – no more than 0.5% per year – is a small fraction of nominal wage growth (around 4-5% per year)
Caveats
• Some employees may be able to convince particular hospitals to bear a greater share of the increase in SG costs:● Those with powerful unions● Those with skills in high demand● Those who place a very low value on superannuation
• These calculations involve projections several years into the future and small fractions of total hospital costs, the results are very sensitive to assumptions