RDP 33 Inflation: Prices and Earnings in Australia Appendix B: Data Notation, Definitions and Sources
April 1974
This appendix is divided into three subsections: the first is a comprehensive alphabetical listing of all notation used throughout the paper; the second is a brief discussion of the data constructed especially for this project and the reasons underlying their construction; and the third is an alphabetical listing of the definitions and sources of all variables used in the empirical analysis.
B.1 Notation
| C | constant term |
| D | demand |
| DL | demand for labour |
| DN | demand for non-tradeable goods |
| DT | demand for tradeable goods |
| ER | effective exchange rate (price of foreign currency in terms of domestic currency) |
| K | utility |
| NE | number employed |
| NHI | number hidden unemployed |
| NHO | number hoarded employed |
| NUR | number registered unemployed |
| NVR | number registered vacancies |
| P | aggregate price level |
| PCPI | consumer price index (a statistical proxy for P) |
| PGDP | implicit deflator for gross domestic product (an alternative proxy for P) |
| PN | price of non-tradeable goods |
| PT | price of tradeable goods |
| PW | price of tradeable goods in the world economy |
| TT | profits |
| Q | labour productivity (average output-labour ratio) |
| S | Supply |
| SL | supply of labour |
| SN | supply of non-tradeable goods |
| ST | supply of tradeable goods |
| TI | sales and other indirect taxes (as a rate) |
| TP | payroll and related taxes (as a rate) |
| TY | income taxes (as a rate) |
| tI | 1 − TI |
| tP | 1 + TP |
| tY | 1 − TY |
| U | unemployment rate (unemployment – labour force ratio) |
| V* | net vacancies minus hoarded labour |
| V*−U | statistical measure for XL, also used for XN |
| WA | minimum weekly award wage rate |
| WE | average weekly earnings |
| X | excess demand |
| XL | excess demand for labour |
| XN | excess demand for non-tradeable goods |
| XT | excess demand for tradeable goods |
| over a variable indicates proportional rate of change | |
| Δ | indicates change |
| e | as a superscript indicates expected |
| t | as a subscript indicates time period t |
B.2 Data Innovations
Several changes in the conventional variables used in inflation work are incorporated in this study. These are described below:
-
The usual series for average weekly earnings (Statistician's series for Average Weekly Earnings per Employed Male Unit) is replaced by a series that includes supplements along with the usual components of earnings, i.e. wages and salaries. This is a more complete measure of the price of labour complementing the inclusion of payroll and income taxes in the labour demand and supply functions. It includes the incomes of farm wage earners but excludes the incomes of self-employed workers and payments to the armed forces. The formula used to construct the series is:
where –
wss wages, salaries and supplements. Source: Quarterly Estimates of National Income and Expenditure, Australian Bureau of Statistics (ABS), Canberra. PAF = payments to armed forces. Source: National Accounts, ABS: quarterly data by interpolation. NEMNF = non-farm civilian employment of males. Source: ibid. NEFNF = non-farm civilian employment of females. Source: ibid. NEMF = employment of male wage and salary earners on farms. Source: Labor Force, ABS. NEFF = employment of female wage and salary earners on farms. Source: ibid. X = weight used by Statistician in calculating average weekly earnings per male unit. Source: Average Weekly Earnings, ABS. Since the Labour Force Survey, from which farm employment data is obtained, does not extend before 1964, earlier data for farm wage and salary earners were estimated using the following equation for farm wage and salary earners in terms of male units (sample period 1964 – 1972)
= .390 S.E.E. = 0.035 D.W. = 1.14
This variable (WE) is equivalent to the conventional average weekly earnings variable except for the inclusion of supplements (employers' contributions to pension funds, workers' compensation etc.) and the neglect of various other minor adjustments made by the Statistician, e.g. household domestics are ignored here.
-
The farm sector is incorporated in the measures of labour force,
employment and productivity. Previous studies have been inconsistent in
using official (C.E.S.) data on vacancies and unemployment and the Statistician's
series for earnings (which include the rural sector) and at the same time
using non-farm civilian employment and a measure of productivity which explicitly
excludes the farm sector.
The inclusion of the farm sector avoids use of inconsistent measures of labour market variables and overcomes the untenable proposition that the farm sector be excluded from a study that intends to explicitly investigate the impact of international markets on the economy via the traded-goods sector.
- A further source of inconsistency in earlier studies has been the use of earnings per employed male unit as the dependent variable in equations where the explanatory variables include measures of productivity and excess demand for labour that take no account of the sex composition of the unemployed and employed. This deficiency is remedied to a large extent by weighting males and females by the factors used by the Statistician in constructing the average weekly earnings variable.[1]
- An attempt is also made to construct a more accurate measure of excess demand for labour. This variable is defined in terms of male unit equivalents and includes the farm sector. As well as being consistent with the dependent variable used, this measure allows for the differential pressure on wages exerted by males and females when unemployed, and the effect of a changing relative sex structure of the employed and unemployed.
As outlined in the text, the excess demand variable is constructed as:
| where | SL | = | NE + NUR |
| DL | = | NE + NVR − NHO | |
| so that | XL | = |  |
The labour force variable NE + NUR is constructed as:
where:
| NEMUNF | = | non-farm civilian employment expressed in male units, i.e. NEMNF + x NEFNF |
| Source: | Employment and Unemployment, ABS | |
| NUMU | = | registered unemployed persons in male units. Source: ibid[2] |
 |
= | total employment on farms, male units. Source: Labour Force, ABS. |
Data for prior to 1964 are estimated by the equation:
= .792 S.E.E. = 0.017 D.W. = 1.60
The series for NVR – NHO (v*) is calculated by subtracting actual employment from an updated series for desired employment (see Hawkins [5]) rather than using recorded vacancies which is subject to inaccuracies and which is unable to detect changes in hours worked per employee. When the series is negative it represents a net hoarding of labour and when positive, net vacancies. The series for desired employment is calculated as:
where
| A3 | = | 4.85532 which is the ratio of the mean of the actual values to the mean of the calculated desired value. |
| ELEFF | = | exp (0.004985 QT), QT is the time trend, increasing by one each quarter from a base zero in 1955(4). ELEFF is labour efficiency factor based on assumed Harrod-Neutral technical progress. |
| GDPB | = | gross private business product; gross domestic product less the sum of wages, salaries etc., supplements paid by general government and public enterprises and dwellings owned by persons; $ million at 1966/67 prices. This series is updated from that reported in Hawkins by forecasting the ratio GDPB/GDP. |
| HAQT | = | exp (6.2142 + 0.000491 QT), which is trend level of hours worked per employee per quarter. |
| KBE | = | end of quarter stock of private business equipment capital, assuming declining balance depreciation at the rate of 3 per cent per quarter; $ million at 1966/67 prices. |
| KBC | = | end of quarter stock of private business construction capital, assuming declining balance depreciation at a rate of 1 per cent per quarter; $ million at 1966/67 prices. |
The derivation of all these series and terms is given in Hawkins' notation and data appendix.
B.3 Data Definitions and Sources
| ER | Effective exchange rate, defined as a trade weighted average movement of prices of foreign currencies so that when this series goes down the $A appreciates relative to the rest of the world, index. Source: Reuters Economic Service. |
| PCPI | Consumer price index, all groups. Source: Consumer Price Index, ABS. |
| Pe | A measure of price expectations, based on the A.C.M.A./Bank of New South Wales Survey of Industrial Trends. The series is constructed as a four quarter percentage change. Source: M.K. Danes [3] |
| PGDP | Price deflator for gross domestic product at market prices, index. Source: Quarterly Estimates of National Income and Expenditure, ABS. |
| PW | “World” price index, defined as the weighted average of consumer prices in the U.S., U.K. and Japan; the weights are the relative real products of the countries. Source: Main Economic Indicators, O.E.C.D., Paris. |
| Q | Productivity, defined as the ratio of real gross domestic product (including the farm sector) to total employment in male units, $. Source: Quarterly Estimates of National Income and Expenditure and Employment and Unemployment, ABS. |
| TI | Purchase taxes as a proportion of total private consumption expenditure. Source: Quarterly Estimates of National Income and Expenditure, ABS. |
| TP | Payroll taxes as a proportion of wages salaries and supplements. Source: ibid. |
| TY | Income taxes as a proportion of wages salaries and supplements. Source: ibid. |
| V*−U | Net vacancies minus unemployment as a percentage of the labour force. Calculated, see pages B.5 & B.6 |
| WA | Award wage rate, defined as minimum weekly wage rate for adult males; weighted sum of monthly data, $. Source: Wage Rates and Earnings. ABS. |
| WE | Average weekly earnings per employed male unit, $. Calculated, see page B.3 |
| Operators | |
| J4P | Four quarter percentage change |
| J4A | Four quarter moving average |
Notes – All data are seasonally unadjusted
All indexes have base 1966/67 = 1
Footnotes
The weight for females is .525 from 1958(1) – 1974(4), .535 from 1971(1) – 1971(4), .545 for 1972(1) and 1972(2) and .55 from 1972(3) [1]
The registered unemployment series reported by the Commonwealth Employment Service has certain shortcomings (see Hancock et al [4]). However, the alternative ABS series from the labour force survey is only available as far back as 1964 and is considered too important a series to extrapolate. It is intended in future work to carry out a number of sub-period analyses, one of which will be to compare the results of using the alternative unemployment series over the period for which they are both available. [2]