This report addresses the nature and effects of wage norms and their links to public sector salary caps. Questions addressed include: what are the recent patterns of nominal and real wages growth? What is the role of wage norms in explaining these patterns? What influences does public policy have on those norms, particularly through public sector pay. What would be the result of changing those policy settings? It pays particular attention to the role of public sector ‘salary caps’, and makes special reference to the situation in the New South Wales public sector.