In August 2021 the Reserve Bank of Australia (RBA) observed that public sector wage growth is the lowest since the Wage Price Index (WPI) began in the 1990’s.
Public sector wages increased by 0.4 per cent in the quarter, as deferrals of increases and wage caps weighed on outcomes in many states…, growth in public sector wages in the March quarter was the lowest since the WPI measure was introduced in the late 1990s.
As outlined in the McKell Institute report, Stuck in Neutral, wage growth has been supressed through government policies including the NSW public sector wage cap of 2.5 per cent since 2011.
As inflation begins to run higher than the wage cap, public servants will receive real wage cuts which will dampen consumer demand and lead to declining living standards in the long run if not addressed.
NSW Teachers are currently engaged in industrial bargaining with the NSW Government. The latest 2.04 per cent wage increase on offer would likely deliver a real wage cut for NSW teachers over the life of the agreement.
The decline in real wages will also drive a relative decline in salaries of the teaching profession.
“There has been a decline in the relative position of teacher salaries alongside that of other professions and a reduced attractiveness of public sector teaching as a career.” – Valuing the teaching profession- an independent inquiry, February 2021
In 2021 real wages across Australia fell by 1.2 per cent. This was a result of rising inflation (3.5 per cent) while wage growth remained at its historic low (2.3 per cent).
When using the Sydney CPI as a measure of inflation for NSW, all public sector workers received a real wage cut of at least 0.6 per cent in 2021. The latest forecasts from the Reserve Bank of Australia (RBA) suggest Sydney CPI will continue to run above the 2.5 per cent wage cap into 2023.
Source: Reserve Bank of Australia
Declining real wages and relative wages to other professions will make teacher recruitment harder. The NSW Education Department has already warned of significant teacher shortages.
“NSW is facing a large and growing shortage of teachers- such as STEM, inclusive education, in rural and regional areas, secondary and where there has been significant population growth.” – Update on the Quality Initial Teacher Education review, briefing note, 2 July 2021.
- Sydney CPI exceeds the 2.5 per cent public sector wage cap for the entirety of the RBA forecast, leading to real wage cuts for NSW public sector workers
- Under the current wage offer, NSW teachers are forecast to receive three consecutive years of real wage cuts
- 1.22 per cent in 2021,
- 1.21 per cent in 2022; and
- 0.71 per cent in 2023.
- Under the current wage offer, real wages for a median NSW teacher will decline by $2,060.48 in 2022 and 2023
- $1,304.37 in 2022; and
- $756.11 in 2023
- Economy-wide wages are forecast to rise faster than the current wage offer, leading to a decline in teacher wages relative to other professions.
- Under the current wage offer, teacher salaries will decline relative to other professions by 0.71 per cent in 2022 and 0.96 per cent in 2023.
CPI is the most common measure of inflation. The NSW Treasury uses Sydney CPI as a measure for inflation when calculating Budget forecasts. Therefore, we use Sydney CPI to determine real wage growth/decline. The RBA forecast Sydney CPI as 3.5 per cent in 2021, 3.25 per cent in 2022 and 2.75 per cent in 2023.
The NSW Government wage offer for teachers is 2.04 per cent from 2022. In 2021 teacher wages grew by 2.28 per cent. As a result, real wages are forecast to decline by 1.22 per cent in 2021, 1.21 per cent in 2022 and 0.71 per cent in 2023.
Teacher wage increases occur on a calendar year basis and so calendar year forecasts are used but are limited to 2023.
According to the NSW Public Service Commissioner Workforce Profile, the median full-time salary for a NSW teacher is $107,799 in 2021. While nominal wages will increase, real purchasing power will decline as inflation outstrips wage growth.
Using the real wage growth forecasts, we can determine the median teacher salary for 2022 and 2023, in 2021 dollars.
The result is a salary in 2022 that, while nominally higher, is worth $1,304.37 less in 2021 dollars. The 2023 salary is a further $756.11 decline in 2021 dollars. In total the median salary for a teacher will decline by $2,060.48 cents relative to 2021.
Economy-wide wages are measured by the WPI. The national WPI is forecast to increase along with inflation, with a lag (2.75 per cent in 2022 and 3 per cent in 2023). Fortunately for Australian workers, the WPI is expected to exceed the CPI in 2023 ending a period of real wage decline.
Accepting teacher wages of 2.04 per cent would be less than economy-wide wage rises of 2.75 per cent in 2022 and 3 per cent in 2023. Even without inflation, teacher wages will decline relative to wages generally.
We determine the real wages of teachers and real wages economy wide. Their difference represents the divergence in salaries. In 2022 this difference will be 0.71 per cent while it will be a higher 0.96 per cent in 2023.
In 2023 real wages for teachers are forecast to decline by 0.71 per cent but increase for workers generally by 0.25 per cent, leaving teacher salaries declining.
About the McKell Institute
The McKell Institute is an independent, not-for-profit research organisation dedicated to advancing practical policy solutions to contemporary issues. The data briefings reports analyse data sets and apply insights to current public policy debates.
Contact for Media Comment
Michael Buckland, CEO, McKell Institute
0401 089 932