Wage freeze will cost an average public servant $23,500 over 20-year career

The report also finds they will reduce super balances and slow wage increases across the private sector.

The new minister responsible for the public service, Ben Morton announced last week all public service pay increases due in the next year would be delayed by six months, a move that was designed to "share the economic burden" caused by the coronavirus downturn.

A new paper from the Australia Institute's Centre for Future Work has found freezing public sector wages will have lifetime flow-on effects, as the deferred increases are compounded in later years.

While the initial annual loss for the average public servant earning $91,500 would be $915, calculations by authors Troy Henderson and Dr Jim Stanford found a pay freeze of six months would reduce income over the next 20 years by $23,592 and reduce a super balance by $4217.

"Even if nominal wages do begin to grow again at the end of the freeze period, in reality workers continue to experience cumulating annual losses," the report says.

"This is because the reduction in wage levels due to the wage freeze is reflected in a permanent reduction in the nominal wage base."

READ MORE

The calculations are based on projections of continued 2 per cent annual increases, the upper limit of increases allowed under the government's workplace bargaining policy.

The eventual loss could be much more for younger public servants with more of their career ahead of them.

"We assume a mid-career worker, with 20 years of service remaining in their job before retirement," Mr Henderson and Dr Stanford write.

"Younger workers, with more years of service ahead of them, would experience even larger cumulative income losses."

Losses to final superannuation balances could be higher than calculated, as the report bases its calculations on the current minimum requirement of the superannuation guarantee of 9.5 per cent, doesn't calculate future legislated increases to 12 per cent, or that many federal public servants receive super contributions of 15 per cent.

For those receiving 15 per cent superannuation contributions, the amount lost in their eventual super balance would be 50 per cent more than the $4217 figure.

While the effect for individual public servants is severe, the flow on effect for the wider economy would "substantially exacerbate the dangerous deflationary risk we already face," the report says.

Freezing public sector wages affects the wider economy in three ways, according to the report, by reducing growth overall, demonstrating to private firms a justification to also restrain wages and a macroeconomic effect.

"By suppressing wage growth and hence undermining incomes and consumer spending (including through the demonstration effect on private sector wage settlements), public sector wage austerity undermines overall aggregate demand conditions."

Imposing wage caps on public sector employees in the wake of the 2008-09 global financial crisis also contributed to slow wage growth across the private sector, the report says.

"For almost three straight years beginning in early 2011, wage growth in the public sector was suppressed well below the private sector," Mr Henderson and Dr Stanford write.

"The negative example set in the public sector, founded on the assumption that reducing wage growth somehow helps the economy, then became entrenched in the private sector, too."

The authors argue the negative economic impacts that would come from wage freezes for the public sector show that such measures are based on how they are received politically rather than on actual benefit to the budget.

"The motivation for the governments' infatuation with wage austerity for their own employees seems to be more political, than fiscal," they write.