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
• 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
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%
• 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
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
●
●
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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
Increase in SG payments to public hospital
employees
Increase in SG payments to private hospital
employees
How much of this cost can public and
private acute and psychiatric hospitals pass
onto employees?
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
Increased SG, wages, employment
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)
201213
201314
201415
201516
201617
201718
201819
201920
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
0.05%
0.09%
0.19%
0.28%
0.37%
0.47%
0.56%
S = 0.8*W
Decline (%)
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
0.39%
0.79%
1.18%
1.57%
1.96%
2.36%
Decline (%)
0%
0.20%
Impacts on labour supply and demand
• S = 0.8*W
●
●
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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 45% per year)
Caveats
• Some employees may be able to convince particular hospitals
to bear a greater share of the increase in SG costs:
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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