Fair Work Act 2009
s.285—Annual wage review

Contents

Abbreviations

1. The Decision

Introduction

[1] The Fair Work Act 2009 (the Act) requires the Expert Panel (the Panel) to conduct and complete a review of the national minimum wage (NMW) and of minimum wages in modern awards in each financial year. The Panel must make a national minimum wage order and may set, vary or revoke modern award minimum wages. This decision deals with the 2014–15 Annual Wage Review (the Review) and directly affects over 1.86 million employees in Australia who are award reliant.

[2] The Act sets out some important procedural fairness requirements for the Review. The Panel must ensure that all persons and bodies (referred to collectively as parties) are given a reasonable opportunity to make and reply to written submissions. In this Review, a number of parties took up this opportunity by lodging one or more written submissions, participating in consultations on 19 and 20 May 2015, or both. The timetable for the Review and all of the submissions, transcript, research reports, and some additional economic data were published on the Fair Work Commission’s (the Commission) website to ensure that all parties had a reasonable opportunity to participate. The Panel considered all of the material received from parties and the published research in making its decision.

[3] This chapter summarises the matters we have considered, our reasoning and the increase we have decided upon. A more detailed discussion of these matters is provided in the subsequent chapters.

The Panel’s approach

[4] As part of the Review the Panel considers both the setting of the NMW rate and whether to make any variation determinations in respect of modern award minimum wages. Each of these tasks is undertaken by reference to the particular statutory criteria applicable to each function. As part of its decision making process the Panel first forms a view about the NMW rate it proposes to set in the review and then takes that proposal into account in exercising its powers to set, vary or revoke modern award minimum rates, as it is required to do by s.285(2).

[5] In setting the NMW rate the Panel must take into account the objects of the Act and the minimum wages objective in s.284. In reviewing modern award minimum wages the Panel must also take these matters into account, as well as the modern awards objective in s.134. Chapters 4–9 of this decision deal with the statutory considerations we are required to take into account. We do not repeat all of that material here but the views expressed in this chapter should be seen in the context of our decision as a whole.

[6] A number of parties to the Review submitted that it would be beneficial if additional information could be provided on the factors considered by the Panel in reaching its decision. The Australian Chamber of Commerce and Industry (ACCI) submitted:

“ACCI accepts that simple rules such as real wage maintenance cannot capture the full range of considerations that the Panel must take into account. ACCI also accepts that the Panel’s judgements about the relative importance of particular considerations may be impossible to fully explain. Nonetheless, similar circumstances should lead to similar results, absent any methodological changes.

Given that a broad exercise of judgement guides the determination of the Panel, detailed explanation of the factors that most significantly influenced the Panel’s decision making would assist the parties in approaching future annual wage reviews. To ensure that all statutory considerations are appropriately taken into account, it is very important to justify how these considerations have been interpreted and operationalised and how judgements have been formed about the relationship between these considerations and changes in minimum and award wages, both in general and in relation to prevailing circumstances. ...

To some extent the Panel already discusses the reasoning behind the definition of statutory considerations and judgements about the empirical effects of changes to minimum and award wages. It is harder to expressly explain the reasoning behind the relative weight that the Panel gives to different statutory considerations. However, the fact that some judgements cannot be fully explained should not prevent the Panel from disclosing the factors which were most central, and quantifying how the Panel’s decision would have changed if key variables had been different. Although there is always more than one factor which changes from year to year, this sort of sensitivity analysis would make the Panel’s decisions more transparent and improve the relevance of submissions in subsequent years.” 1

[7] In taking into account available economic and social data, the Panel’s approach is broadly to assess the changes in these data from year to year and determine how they inform the statutory criteria. Put another way, and consistent with ACCI’s submission, if there were no change in the relevant considerations from one year to the next then, all other things being equal, a similar outcome would result.

[8] An example of this approach is the Panel’s consideration of changes in the superannuation guarantee rate (SG rate) set under the Superannuation Guarantee (Administration) Amendment Act 2012. In the 2013–14 Review decision, the Panel took into account a scheduled 0.25 percentage point increase in the SG rate which was a moderating factor in the Panel’s assessment of the adjustment that should be made to minimum wages. As a result, although not quantified, the increase in the NMW and modern award minimum wages determined in that Review was lower than it otherwise would have been in the absence of the SG rate increase. Had that scheduled SG rate increase not existed, the consequence of this approach is that, all other things being equal, the outcome of last year’s review would have been higher than the 3 per cent awarded. We note that there is no scheduled increase in the SG rate this year.

[9] The Panel makes a comparative assessment of both actual and forecast data (particularly in relation to the economy) as part of this approach. For reasons outlined in the 2012–13 Review decision, there is generally a focus on actual data:

“[7] In assessing the various economic considerations the Panel takes into account both actual economic indicators and those that are forecast at the time of each decision. Of these, the actual indicators tend to be the primary consideration, because they are by definition more reliable than forecasts. However, it is also appropriate to have regard to future projections that cast some light on the economic circumstances that are expected to apply during the period when any adjustment will operate.

[8] To the extent that the forecast economic indicators do not ultimately reflect the actual performance of the economy, this forms part of our broad assessment and our consideration of the actual indicators in subsequent reviews. Importantly, when considering both actual and forecast indicators, the Panel pays particular attention to trends, because of the volatility in some of the economic indicators.” 2

[10] To the extent that the “broad assessment” referred to includes a consideration of past forecasts in the context of actual economic indicators, it is important to note that this is not undertaken with the intent of enabling some sort of quantifiable adjustment to minimum wage outcomes. A mechanistic approach such as this would not be consistent with the statutory framework. Rather, the Panel considers all information about the economic and social environment that is available (including forecasts) to inform the conduct and determination of each review.

[11] The Panel is required to conduct each annual wage review within the framework of matters set by the Act, particularly the object in s.3, the modern awards objective in s.134(1) and the minimum wages objective in s.284(1). The Panel’s task is to consider the relevant statutory matters it is required to take into account in the context of the economic and social environment in order to make its decision in the review. 3

[12] The wide range of data and information before the Panel and the often complex interaction between these factors mean that a comparison between reviews will rarely be straightforward. There is not a formulaic relationship between changes in particular indicators or factors over time and the outcome of annual wage reviews. Further, as we have previously identified, there is often a tension between the economic and social matters we must take into account. 4 As a result, while the Panel seeks to explain its view of the circumstances (including forecasts or projections) prevailing in each annual wage review in comparison to previous years, it is not feasible to quantify the weight given to particular factors in balancing the various considerations prescribed by the Act. This also explains why proposals premised on a fixed relationship between the rate of inflation and minimum wages directed towards real wage maintenance are not consistent with the statutory framework.

[13] We now turn to the considerations which we must take into account. The matters of direct relevance to the Review can be grouped into three broad categories: economic; social; and collective bargaining.

Economic considerations

[14] Both the minimum wages objective and the modern awards objective require us to take into account various economic considerations. The underlying intention of these provisions is that the Panel takes into account the effect of its decisions on national economic prosperity and in doing so gives particular emphasis to the economic indicators specifically mentioned in the relevant statutory provisions.

[15] Recent economic performance reflects a continuing transition from an economy driven by the resources investment boom toward more balanced growth, but with real gross domestic product (GDP) growth below trend as mining investment has fallen and there has not yet been a significant improvement in non-mining investment.

[16] The immediate outlook is for improved growth in 2015–16, albeit still below trend, with a return to trend growth in 2016–17, with an increasing contribution from non-mining investment as excess capacity is taken up by continuing growth in consumption, home building and exports.

[17] Real GDP growth remained below trend growth over the past two years, growing by 2.5 per cent over the year to the December quarter 2014, mainly supported by net exports, final household consumption expenditure and private investment in dwellings. New capital expenditure has fallen since late 2011, reflecting declining mining investment with a shift from the investment to the export phase in the resource industry.

[18] Labour productivity, measured by GDP per hour worked, rose by 1.6 per cent over the year to the December quarter 2014, following growth over each of the preceding three years. Productivity at the industry level has grown in the award-reliant industries in excess of the all industries average of 1.5 per cent in 2013–14, other than in the Other services industry. There is no evidence that minimum wage increases arising out of the annual wage review have had an adverse impact upon productivity, at an aggregate level or at an industry level.

[19] Factor shares have settled over the past three years. Company gross operating profits in the non-Mining industries rose by 1.2 per cent over the year to the December quarter 2014. Of the award-reliant industries, company gross operating profits increased significantly in the Accommodation and food services; Retail trade; and Administrative services industries over the year to the December quarter 2014, and fell significantly in the Other services industry.

[20] There is no evidence of particular corporate stress. Business bankruptcy rates fell significantly in 2013–14, to the lowest level since 2008–09. Business entry rates for all industries in 2013–14, at 13.7 per cent, exceeded business exit rates, at 12.7 per cent. Business exit rates were lower in 2013–14 than in 2010–11, in aggregate and for each of the award reliant industries. Real unit labour costs remain at historically low levels. The unit labour cost data shows, in aggregate, an absence of cost pressures from the labour market.

[21] The rate of inflation and wages growth moderated significantly over the past year. The headline Consumer Price Index (CPI) increased by only 1.3 per cent over the year to the March quarter 2015, reflecting a significant fall in the automotive fuel component together with the removal of the price on carbon. Underlying inflation, at 2.4 per cent over the year to the March quarter 2015, remains within the Reserve Bank of Australia (RBA) medium-term target band.

[22] Each measure of wages reflects a continuing fall in aggregate wages growth over the past year, to historically low levels. This is contributing to the process of adjusting to the downturn in the terms of trade, as real net national disposable income (RNNDI) has increased by less than GDP from the second half of 2011.

[23] The very sharp rise in Australia’s terms of trade from 2007 to 2011, followed by an almost equally large fall since then, has had substantial implications for the Australian economy and for wage earners. It has caused a disturbance in several economic relationships that are normally quite settled.

[24] One of these is the relationship between the growth in GDP and the growth in RNNDI. It is RNNDI that best captures the income that is available to distribute to labour and capital. As it grew faster than GDP, from 2007 until 2011, average wage growth accelerated as wage earners gained some of the benefits that came from the increase in the value (as distinct from the volume) of the products that Australia exports. The profit share of national income rose a little, but labour still gained some of the greater income. Prior to the acceleration of RNNDI, the measures of average wages (average weekly ordinary time earnings (AWOTE) and average weekly earnings (AWE)), the Wage Price Index (WPI) and the NMW had all risen at about the same rate. Between 2007 and 2011, as RNNDI rose rapidly, the average wage measures rose substantially faster than did the WPI, the NMW and modern award minimum wages. The gains to labour came in the form of higher utilisation of the labour force and a growth in higher paying jobs, with little of it flowing to the award-reliant workforce. One effect of the growth in nominal average wages was a growth in nominal unit labour costs (although not in real unit labour costs). These high nominal unit labour costs have made it harder for Australian firms outside the resources sector (which was receiving the high prices) to compete internationally.

[25] The subsequent fall in the terms of trade has reversed the relationship between GDP and RNNDI: while GDP has continued to rise, albeit at a somewhat slower pace, RNNDI has grown much more slowly. As mentioned earlier, RNNDI has increased at a slower rate than GDP from the second half of 2011. Between December 2012 and December 2014, GDP grew by 4.7 per cent while RNNDI grew by 2 per cent.

[26] The economy is now in a position where it must absorb the consequences of the slow growth of RNNDI, including the consequences for wages growth.

[27] Reflecting lower than trend GDP growth, employment growth has remained subdued, although it has strengthened over the past year, growing by 1.6 per cent over the year to April 2015. Hours worked grew more rapidly—by 2.6 per cent over the year to April 2015. The unemployment rate has grown steadily from its recent low of 4.9 per cent in March 2011, to 6.1 per cent in April 2015, although the unemployment rate has remained steady since the middle of 2014. The participation rate of people aged 20–64 years in December 2014 was higher, at 79.1 per cent, than in all but one year over the last decade, and rose again to 79.2 per cent in April 2015.

[28] Recent changes in employment and hours worked, the participation rate, the employment-to-population ratio and retrenchments do not suggest particular weakness in the labour market for either males or females over the past year. In contrast, there has been a growth in unemployment, under-employment, long-term unemployment and youth unemployment, all of which are signs of under-utilisation of the workforce. We interpret this to mean that growth in the supply of labour has outstripped growth in the demand for labour—both are growing, but at different rates.

[29] Industry data does not suggest that the most award-reliant industries have faced an economic environment over the past year that was more challenging than that facing the economy generally and provide no basis to conclude that recent minimum wage increases have significantly impacted on the economic performance of the award-reliant industries. There is no evidence to suggest that the economic conditions for small businesses have diverged materially from those of businesses generally within the industries in which they operate, as reflected in aggregate and sectoral economic data.

[30] Stronger economic growth is anticipated by the Australian Government and the RBA in 2015–16 and 2016–17, supported by continuing stronger household consumption, with a modest fall in the household savings ratio, continued strong growth in dwelling investment, a strengthening of non-mining business investment and an improved contribution to growth from net exports.

[31] The stronger GDP growth is expected to support stronger employment growth and a reduction in the unemployment rate in 2016–17 following a peak in unemployment at 6� per cent in 2015–16.

[32] The CPI is forecast to increase in 2015–16 from its exceptionally low level in 2014–15, to remain at the middle of the RBA’s 2–3 per cent medium term target range. Wages growth is expected to increase slightly in 2016–17 from its historically low current levels. The continuing moderate inflation and aggregate wages growth suggests that the increase in minimum wages we have determined will not bring inflationary consequences.

[33] The outlook for the Australian economy remains generally positive. Global conditions are expected to continue to improve with stronger growth expected in the world economy and within Australia’s major trading partners. The transition to broader growth in the Australian economy is occurring, with household consumption, dwelling investment and exports all lifting. There remains, however, uncertainty as to the timing of the transition from the resources investment boom, and the pace and timing of stronger, more broadly based economic growth. A sustained recovery in non-mining business investment is taking longer than expected and growth in public final demand remains below that of GDP.

Social considerations

[34] Both the minimum wages objective and the modern awards objective require us to take into account relative living standards and the needs of the low paid when setting minimum wage rates. Those matters must be considered, within the range of statutory matters in ss.134(1) and 284(1) of the Act, in the context of the evidence relevant to a particular review. They are different, but related, concepts. 5

[35] The assessment of relative living standards requires a comparison of the living standards of workers reliant on the NMW and modern award minimum rates with those of other groups that are deemed to be relevant.

[36] The assessment of the needs of the low paid requires an examination of the extent to which low-paid workers are able to purchase the essentials for a “decent standard of living” and to engage in community life, assessed in the context of contemporary norms.

[37] When assessing the needs of the low paid, the Panel has accepted that award-reliant employees who receive a rate of pay that (as a full-time equivalent) would place them below two-thirds of median (adult) ordinary time earnings provides a suitable and operational benchmark for identifying who is low paid. Most submissions in the current review have utilised the two-thirds benchmark, although not necessarily the restriction to adults and to ordinary time. The precise definition of earnings makes a substantial difference to the value of the median. While the estimates vary, all suggest that a sizeable proportion—perhaps half—of employees who are award reliant are also low paid.

[38] Several parties addressed the use by the Panel of a single-person adult household as the benchmark for assessing relative living standards and the needs of the low paid. An argument was put that a single-earner household with two dependent children should be the relevant benchmark. We affirm our use of the single-person household as the principal, but not the sole, reference point. We consider the position of many family types and take into account the interaction between wages and the tax-transfer system to produce equivalent household disposable income.

[39] In terms of tax-transfer payments and legislative change, the Australian Government submitted that the Panel should take into account the repeal of the carbon tax and the continuation of compensation for low- and middle-income households.

[40] In its 2012–13 Review decision, the Panel abstracted from the CPI the effect of the introduction of the carbon price for the purpose of adjusting minimum wages because of the compensation provided by the government. As a result, award-reliant employees have received a lesser ongoing wage increase but have enjoyed ongoing compensation by the government. In that circumstance, the Panel has decided to have regard to the CPI effects of the carbon price abolition by considering the published CPI, which reflects the actual price reduction resulting from the removal of the carbon price.

[41] Relative living standards focus on the comparison between award-reliant workers and other employees, especially non-managerial employees, but does not exclude comparison with other groups.6

[42] Since its introduction in 1997, the NMW has increased on average by 0.8 per cent per annum in real terms; it rose by 1.3 per cent over the most recent year, to the December quarter 2014. This increase is consistent with the intention of the Panel in the 2013–14 Review decision to award an increase which would result in a modest improvement in the real value of the NMW and modern award minimum wages.

[43] The NMW and modern award minimum rates have grown more slowly over the past decade than have measures of average pay, although growth in the NMW has remained close to that of the WPI. The divergence between minimum wage rates and average wages has slowed or narrowed over 2013 and 2014, reflecting reduced growth in average wages.

[44] The NMW has fallen from 44.3 per cent to 43.4 per cent of AWOTE over the five year period from November 2009 to November 2014, with somewhat larger falls for the higher modern award minimum rates.

[45] Taxes and transfers appear to have relatively and absolutely improved the disposable incomes of NMW-reliant and C10-reliant families since 2010, other than for some couple families with no dependent children. Over the past five years real disposable household income has risen for all household types, typically by around 3.5 per cent. Both the real value of minimum wages and changes in the tax-transfer system have contributed. For full-time NMW earners without children, all the rise came from the increase to the NMW, whereas for NMW earners with children it came predominantly from changes to the tax-transfer system.

[46] The gradual increase in income inequality over the past two decades appears to have stabilised or even reversed from at least 2007–08, although income inequality remains at relatively high levels compared with the past. Annual wage review decisions have a role to play in ameliorating inequality but this role is limited by the statutory factors that we have to take into account and by the range of factors impacting on income inequality.

[47] We had limited contemporary information before us about the extent to which award-reliant households had equivalent incomes that were below a specific poverty line or displayed some other indicator of need, such as material deprivation. The information that we did have showed that about one-third of households below the 60 per cent of median household disposable income poverty line had wages and salaries as their principle source of income. In 2011–12, 8.1 per cent of those employed full-time and 25.2 per cent of those employed part-time were below this poverty line.

[48] An up to date comparison of poverty rates is possible if the equivalent disposable incomes of hypothetical households are used. This showed that disposable income is less than the 60 per cent median income poverty lines for a single-earner couple, with or without children, earning either the NMW or C10 rate, in circumstances where the non-earning partner is not in the labour force and hence not receiving Newstart Allowance. A comparison of the situation in 2013 with that in 2014 shows that the situation has improved a little: for every type of household modelled, disposable income either rose or stayed the same as a proportion of the 60 per cent poverty line.

[49] Financial stress and deprivation measures provide direct information about the adequacy of income to meet needs. A suite of deprivation and financial stress measures can inform the review process, in combination with other measures of the needs of the low paid, subject to an understanding of what they measure. The level of financial stress reported rose more for low-paid households than for all employee households in the aftermath of the global financial crisis (GFC). The limited data for the most recent years (to 2013) suggests small increases in stress for low-paid households but not for all employee households.

[50] Our overall assessment is that the relative living standards of NMW and award-reliant employees has improved a little over the past year or two. Inequality among all employees has stabilised. Indicators of unmet need among the low paid, while substantially higher than for the higher paid, have if anything also improved.

[51] The Act requires the Panel to take into account “promoting social inclusion through increased workforce participation” (s.284(1)(b)). Consistent with past review decisions, we interpret this to mean increased employment. Higher minimum wages can provide incentives to those not in the labour market to seek paid work, which needs to be balanced against potential negative impacts on the supply of jobs for low-paid workers.

[52] For the purposes of making a determination, we must form a view on the employment impacts of an increase in the NMW and modern award minimum wages of the size that we have in mind and in the economic circumstances that we face. After consideration of the latest research on the employment effects of rises in minimum wages, we remain of the view that modest and regular increases in minimum wages have a small or even zero impact on employment. There is legitimate disagreement about what constitutes a “modest” increase, and we accept that this is a factor supporting a lower increase in times when unemployment is relatively high.

[53] In giving effect to both the modern awards objective and the minimum wages objective the Panel must take into account the principle of equal remuneration for work of equal or comparable value (s.134(1)(e) and s.284(1)(d)).

[54] Women are disproportionately represented among both the low paid and the award reliant 7 and hence an increase in minimum wages is likely to promote pay equity, though we accept that moderate increases in minimum award wages would be likely to have only a small effect on the gender pay gap. The principle of equal remuneration is a factor in favour of an increase in the NMW and the minimum wages in modern awards.

Collective Bargaining

[55] As we have mentioned, the modern awards objective applies to the setting, varying or revoking of modern award minimum wages in an annual wage review. The modern awards objective provides that the Panel must ensure that modern awards, together with the National Employment Standards (NES), provide a fair and relevant minimum safety net of terms and conditions. One of the matters the Panel is required to take into account in giving effect to the modern awards objective is “the need to encourage collective bargaining” (s.134(1)(b)).

[56] Since 2012, the proportion of employees whose pay is set by awards has increased (from 16.1 per cent to 18.8 per cent) while the proportion of employees on both collective agreements and individual arrangements/owner-managers has declined. 8 For the reasons given in Chapter 7 we are not persuaded that the recent increase in award reliance is sufficient to support the contention that recent minimum wage increases have acted as a disincentive to collective bargaining. In particular we note that while most of the award-reliant industries experienced increases in award reliance, it increased only slightly in Other services (0.5 percentage points). The Accommodation and food services industry, which has the highest proportion of “award only” employees9 of all industries (42.8 per cent in 2014), had a 2 percentage point fall in award reliance between 2012 and 2014. This tells against the proposition that the form or size of recent minimum wage increases have increased award reliance.

[57] The Panel’s previous conclusions as to the relationship between increases in minimum wages and collective bargaining remain valid, in particular:

• whilst the gap between the NMW and modern award minimum wages and bargained wages is likely to increase the incentive for employees to bargain, a large gap may be a disincentive for employers to bargain; and



• minimum wages are only one element of the incentive to bargain. 10

[58] The available evidence indicates that the level of increases in minimum award wages over the past decade or so have been compatible with the encouragement of collective bargaining. We are satisfied that the increase awarded in this Review is also compatible with the need to encourage collective bargaining.

The decision

[59] The Panel received submissions from the Australian Government and State governments, the Federal Opposition, collective bodies representing employers and employees and other organisations. Many of the submissions did not advance a specific proposal as to the quantum of any increase to the NMW or modern award minimum wages, including all government submissions. Further, two submissions proposed that there be no increase in minimum wages.

[60] A number of business and industry associations supported flat dollar increases, although views varied as to the appropriate quantum. ACCI and a number of others proposed an increase of not more than $5.70 per week whereas the Australian National Retailers Association (ANRA) supported an increase of $9.00 per week.

[61] Other business and industry associations supported a percentage increase. The Australian Industry Group (Ai Group) proposed a 1.6 per cent increase to both the NMW and modern and minimum wages, which represents a $10.25 per week increase to the NMW.

[62] The Australian Council of Trade Unions (ACTU) proposed a flat dollar increase of $27.00 per week to the NMW and to modern award minimum wages up to and including the C10 level and a 3.6 per cent increase to all modern award minimum wages above that level. ACCER also put forward a tiered approach though with a higher flat dollar increase to the NMW and at the lower end of modern award minimum wages. The range of proposals advanced is set out in more detail in Chapter 3.

[63] A number of submissions contended that the increases awarded in past reviews had overcompensated workers for a projected increase in inflation which did not eventuate. Similar submissions were put in last year’s Review proceedings. These submissions proceed on a false premise.

[64] As the Panel has observed before, there is often a degree of tension between the economic, social and other considerations which the Panel must take into account. It is this complexity which has led the Panel to consistently reject a mechanistic or decision rule approach to wage fixation, such as the adoption of real wage maintenance.

[65] The real wages of award-reliant employees are relevant to our task, but they are not determinative. To adopt real wage maintenance as a decision rule would fail to take into account other considerations including, for example, relative living standards (as we are required to do by s.284(1)(c)) in circumstances where the rate of growth in average earnings and bargained rates of pay have outstripped growth in minimum rates of pay.

[66] The most significant change in economic outcomes since the last Review is the reduction in inflation and aggregate wages growth. We have had particular regard to the lower growth in consumer prices and aggregate wages growth over the past year because they have a direct bearing on relative living standards and the needs of the low paid. The lower inflation and aggregate wages growth favours a more modest increase in minimum wages.

[67] Further, the unemployment rate has grown steadily from its recent low of 4.9 per cent in March 2011, to 6.1 per cent in April 2015 and there are other signs of under-utilisation in the workforce. The 2015–16 Budget Strategy and Outlook reflects a pushing out of the projected timing of a return to trend growth and the peaking of unemployment, with a slower than expected transition to non-mining investment than previously forecast. Uncertainty as to the timing of a stronger non-mining investment contribution to economic growth provides a reason for some caution.

[68] We have not taken into account the proposed small business stimulus package and other measures announced in the 2015–16 Budget. It has been a longstanding practice of the Panel and its predecessors to determine the matters before it on the basis of the existing legislative framework and not otherwise. We have not been persuaded to depart from that practice on this occasion.

[69] A number of parties made submissions raising particular industry or sector circumstances and these have been outlined in Chapters 3 and 9, and in Appendix 1 of this decision. They included the conditions facing small and medium enterprises (SMEs) and businesses operating in the hospitality, restaurant and catering, and retail sectors. The economic circumstances of these sectors have been examined in Chapter 4. The Chamber of Commerce and Industry Queensland (CCIQ) also raised the circumstances of businesses in industry sectors and regions affected by the impacts of natural disasters, such as droughts and cyclones, over the past year. All of these circumstances have been taken into account in making our decision in this Review.

[70] The principle of equal remuneration for work of equal or comparable value is a factor in favour of an increase in the NMW and modern award minimum wages. In terms of the other social considerations we are required to take into account, we note that the relative living standards of NMW and award-reliant employees have improved a little over the past year or two, as have the indicators of unmet need among the low paid. These considerations favour a more modest increase to minimum wages.

[71] The increase we have determined is consistent with the promotion of social inclusion through increased workforce participation and is also compatible with the need to encourage collective bargaining.

[72] While we have determined that it is appropriate to increase the NMW, the factors identified above have led us to award a lower increase than that determined in last year’s Review decision. We consider that an increase of 2.5 per cent is appropriate.  The national minimum wage will be $656.90 per week or $17.29 per hour. The hourly rate has been calculated by dividing the weekly rate by 38, on the basis of the 38 hour week for a full-time employee. This constitutes an increase of $16.00 per week to the weekly rate or 42 cents per hour to the hourly rate.

[73] Having regard to the proposed NMW and the other relevant considerations, we also consider that it is appropriate to adjust modern award minimum wages by a moderate amount.

[74] A number of parties advanced submissions in favour of an award-by-award review of minimum wages or a differential wage increase for specific employers or industries. The scheme of the Act is more consistent with establishing adjustments across the range of modern awards, and, in the absence of exceptional circumstances, taking the sectoral variations into account when determining the level and nature of adjustments that will apply to the modern awards generally. Exceptional circumstances can and should be considered on their merits as required by the Act.

[75] For reasons outlined in Chapter 9, no exceptional circumstances so as to warrant a deferral of the increases we have awarded have been demonstrated in this Review.

[76] As to the form of the increase, past flat dollar increases in award minimum rates have compressed award relativities and reduced the gains from skill acquisition. The position of the higher award classifications has reduced relative to market rates and to average earnings and has fallen in terms of real purchasing power. These matters have led us to determine a uniform percentage increase. The considerations to which we have referred have also led us to award an increase in modern award minimum wages that is less than last year. We have decided to also increase modern award minimum wages by 2.5 per cent. Weekly wages will be rounded to the nearest 10 cents.

[77] The determinations and order giving effect to our decision will come into operation on 1 July 2015.

[78] We again draw attention to the practical difficulties which arise from the interaction of ss.157(2), 285(1) and 286 of the Act as it impacts upon claims of incapacity to pay. In particular, there is no mechanism in the Act for revisiting a determination varying modern award minimum wages after an annual wage review has been completed. As a result of this legislative inflexibility, a small or large business; a sector; or a region facing circumstances warranting the deferral of, or exemption from, an annual wage review increase can only make such an application in the context of an annual wage review. So if the adverse circumstances arose in, for example, July, the businesses affected would have to wait until the following year (i.e. the next annual wage review) before they could seek relief. This is a matter which requires legislative amendment to provide parties with an avenue to seek relief from increases flowing from an annual wage review. Such relief could be available to an individual employer or on an industry, sector or geographic basis.

[79] The Panel drew attention to these issues in the 2011–12, 2012–13 and 2013–14 Review decisions but no legislative amendments have been made and, as a consequence, the practical difficulty created by the legislative framework remains.

2. The Statutory Framework

[80] In conducting and completing an annual wage review, the Commission must review the NMW and modern award minimum wages and make a national minimum wage order. 11 The Act requires the Panel to take into account a number of considerations in performing these functions.

[81] The minimum wages objective applies to the exercise of functions and powers under the Parts of the Act concerning the NMW and minimum wages in modern awards as part of an annual wage review. 12

[82] The minimum wages objective is set out in s.284 of the Act:

“284 The minimum wages objective

What is the minimum wages objective?

(1) The FWC must establish and maintain a safety net of fair minimum wages, taking into account:

(a) the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

(b) promoting social inclusion through increased workforce participation; and

(c) relative living standards and the needs of the low paid; and

(d) the principle of equal remuneration for work of equal or comparable value; and

(e) providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

This is the minimum wages objective.”

[83] The modern awards objective applies to the exercise of functions and powers in setting, varying or revoking modern award minimum wages as part of an annual wage review. 13

[84] The modern awards objective is set out in s.134 of the Act:

“134 The modern awards objective

What is the modern awards objective?

(1) The FWC must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

(a) relative living standards and the needs of the low paid; and

(b) the need to encourage collective bargaining; and

(c) the need to promote social inclusion through increased workforce participation; and

(d) the need to promote flexible modern work practices and the efficient and productive performance of work; and

(da) the need to provide additional remuneration for:

(i) employees working overtime; or

(ii) employees working unsocial, irregular or unpredictable hours; or

(iii) employees working on weekends or public holidays; or

(iv) employees working shifts; and

(e) the principle of equal remuneration for work of equal or comparable value; and

(f) the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and

(g) the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and

(h) the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

This is the modern awards objective.”

[85] The modern awards objective is directed at ensuring that modern awards, together with the NES, provide a “fair and relevant minimum safety net of terms and conditions” taking into account the particular considerations identified in paragraphs 134(1)(a)–(h). No particular primacy is attached to any of the s.134 considerations. 14 The modern awards objective is very broadly expressed.15 In National Retail Association v Fair Work Commission the Full Court of the Federal Court made the following observation about the modern awards objective:

“[109] It is apparent from the terms of s 134(1) that the factors listed in (a)-(h) are broad considerations which the FWC must take into account in considering whether a modern award meets the objective set by s 134(1), that is to say, whether it provides a fair and relevant minimum safety net of terms and conditions. The listed factors do not, in themselves, however, pose any questions or set any standard against which a modern award could be evaluated. Many of them are broad social objectives. What, for example, was the finding called for in relation to the first factor (“relative living standards and the needs of the low paid”)?” 16

[86] In our view the above observation can also be applied to the minimum wages objective in s.284.

[87] In exercising its power to set, vary or revoke modern award minimum wages, the Panel must take into account the rate of the NMW that it proposes to set in the review. 17 We return to this issue shortly in dealing with a submission put by ACCER.

[88] We would also observe that there is a degree of inconsistency in the expression of the economic considerations that the Panel is required to take into account under either s.284 or s.134. As ACCI pointed out in its submissions:

• employment growth and inflation are mentioned as separate considerations under the modern awards objective (s.134(1)(h)), but in the minimum wages objectives these factors appear to be subsidiary to the performance and competitiveness of the national economy (s.284(1)(a)); and



• the modern awards objective requires the Panel to take into account “the likely impact of any exercise of modern award powers on...the sustainability, performance and competitiveness of the national economy” (s.134(1)(h)), whereas the “sustainability” of the national economy is not mentioned in the minimum wages objective.  18

[89] Despite these textual differences, we accept the thrust of ACCI’s submission, that the underlying intention of the various economic considerations referred to in ss.284 and 134 is that the Panel take into account the effect of its decisions on national economic prosperity and in so doing give particular emphasis to the economic indicators specifically mentioned in the relevant statutory provisions. 19 Such an approach is supported by the object of the Act.

[90] The object of the Act is as follows:

3 Object of this Act

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:

(a) providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

(b) ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and

(c) ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

(d) assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

(e) enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

(f) achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and

(g) acknowledging the special circumstances of small and medium-sized businesses. [emphasis added]

[91] Section 578(a) provides, relevantly, that the Panel must take into account the objects of the Act in performing its functions or exercising its powers in an annual wage review. 20

[92] Sections 284, 134 and 578 of the Act each direct the Panel to “take into account” certain specified considerations in conducting and completing an annual wage review. A matter which the Panel is directed to “take into account” is any relevant consideration in the Peko-Wallsend 21 sense; which is those matters which the decision maker is bound to take into account and treat as a matter of significance in the decision making process.22

[93] We note that there are some significant differences between the matters we are required to take into account and the statutory parameters which guided wage reviews conducted by the Australian Fair Pay Commission (AFPC) under the Workplace Relations Act 1996 (Cth) (the WR Act), between 2006 and 2009. Section 23 of the WR Act provided that the objective of the AFPC in performing its wage setting function was “to promote the economic prosperity of the people of Australia”, taking into account specific criteria. As was noted in the 2009–10 Review decision there are some important considerations which we are required to take into account but which the AFPC was not specifically required to take into account—including relative living standards and the needs of the low paid.  23

[94] The minimum wages objective, the modern awards objective and the general matters the Panel must take into account in performing its functions contain some common elements. The matters of direct relevance to an annual wage review can be conveniently grouped into three broad categories:

• economic; 24



• social; 25 and



• collective bargaining. 26

[95] We have considered these matters in making our decision and specifically address them in Chapters 4–9 of this decision. Chapter 3 discusses the proposals of the parties to this Review.

[96] As the Panel has noted in previous wage reviews, there is often a degree of tension between the economic, social and other considerations which it must take into account. This tension and the complexity of the matters involved means that the task of setting minimum wages requires exercise of broad judgment, rather than a mechanistic approach. 27

[97] The submissions have raised four discrete issues which relate to the statutory framework:

(i) a proposal that the Commission consider increasing superannuation contributions from employers through the 4 yearly review of modern awards process;

(ii) proposals that the Panel should consider award, industry or regional variations;

(iii) whether the Act requires that the NMW be set independently of the setting of wage rates prescribed by modern awards; and

(iv) whether the adoption of a single-person benchmark is consistent with the Act.

(i) Superannuation

[98] The ACTU seeks a direction under either s.615 or s.582 of the Act that a Full Bench be constituted as part of the current 4 yearly review of modern awards to consider a claim to vary the model superannuation term in modern awards. 28

[99] The ACTU claim provides for increases in superannuation contributions from employers above the rate prescribed in the Superannuation Guarantee (Administration) Act 1992, as amended by the Minerals Resource Rent Tax Repeal and Other Measures Act 2014.

[100] The model superannuation term in modern awards currently provides as follows:

“S.2 Employer contributions

An employer must make such superannuation contributions to a superannuation fund for the benefit of an employee as will avoid the employer being required to pay the superannuation guarantee charge under superannuation legislation with respect to that employee.” 29

[101] The ACTU seeks to replace the current model term with a term which specifies the quantum of superannuation contributions to be paid to employees, as follows: 30

“S.2 Employer contributions

An employer must make such superannuation contributions to a superannuation fund for the benefit of an employee at the level specified in (a) or (b) below, whichever is the higher:

(a) the level as will avoid the employer being required to pay the superannuation guarantee charge under superannuation legislation with respect to that employee.

(b) the level that would apply if the charge percentage as specified in section 19 of the Superannuation Guarantee (Administration) Act 1992 was instead:

Year starting on 1 July 2015:	10
Year starting on 1 July 2016:	10.5
Year starting on 1 July 2017:	11
Year starting on 1 July 2018:	11.5
Year starting on 1 July 2019:	12

[102] Ai Group, ACCI, ABI and others submitted that the Panel has no jurisdiction to entertain the ACTU’s superannuation claim. We agree. The ACTU is not seeking to have its superannuation claim dealt with in these Review proceedings, rather it seeks a direction, under either s.615 or s.582, that a Full Bench be convened to hear and determine its claim.

[103] Section 582 provides, relevantly, that the President may give a direction that a particular matter be dealt with by a Full Bench. Similarly, s.615(2) provides that the President may direct that a function or power be exercised by a Full Bench. Importantly, the power conferred by these provisions to direct that a matter be heard by a Full Bench is only exercisable by the President, not by the Panel. This point was conceded by the ACTU during the course of the public consultations. 31

[104] If the ACTU wishes to pursue its superannuation claim the appropriate course is to file applications to vary the relevant modern awards and then to seek to have those applications referred to a Full Bench pursuant to ss.582, 615 or 615A.

(ii) Consideration of award, industry and regional variations

[105] As noted in Chapter 9, a number of parties submitted that no increases in minimum wages should be made in respect of certain modern awards. The MGA/LRA submitted that the Panel may grant a differential increase for one or more modern awards which “would consequently allow those industry sectors, such as retail, which will be most affected by an increase to the minimum award wage, to be granted an exemption from any increase to the designated modern award.” 32 However the MGA/LRA did not advance any particular claim for an exemption in respect of a particular modern award.

[106] Further, the ARA advanced the following submission:

“The FWC should consider any increase on an award-by-award basis and provide an interim decision or statement prior to handing down a final decision.” 33

[107] Two observations may be made about these submissions.

[108] The first is that the Panel has previously considered submissions to the effect that it should conduct a modern award-by-modern award review of minimum wages and that this should result in a different, lower, increase or no increase at all in specific industries or modern awards. These matters were fully canvassed in the 2011–12, 2012–13 and 2013–14 Review proceedings. In the 2012–13 Review decision the Panel said:

“[12] In Chapter 2 we deal with the statutory framework in more detail and confirm a number of general observations made by the Panel in the Annual Wage Review 2011–12 decision (2011–12 Review decision). 34 In particular we endorse the following observations:

“the legislative framework reveals a preference for consistent variation determinations across all modern awards…[t]he notion of a fair safety net of minimum wages embodies the concepts of uniformity and consistency of treatment.” 35

[13] The award-by-award approach to minimum wage fixation, based on sectoral considerations, advocated by some parties in these proceedings is inimicable to the safety net nature of modern award minimum wages. Enterprise level collective bargaining is the primary means by which the statutory framework envisages differential treatment based on the circumstances in particular enterprises, which would be influenced by relevant sectoral considerations. That the system does function in this way is evidenced by the sectoral variation in actual wage outcomes.” 36

[109] In the 2013–14 Review decision the Panel concluded as follows:

“[517] The scheme of the Act is more consistent with establishing adjustments across the range of modern awards, and in the absence of exceptional circumstances, taking the sectoral variations into account when determining the level and nature of adjustments that will apply to the modern awards generally. Exceptional circumstances can and should be considered on their merits as required by the Act.

[518] We also note that any decision to provide different wage outcomes based upon the particular circumstances in each industry, as they might vary from time to time, would inevitably lead to the loss of any relativity between the wages specified in modern awards. This would not sit comfortably with the principle of equal remuneration for work of equal or comparable value, which forms part of the minimum wages objective.” 37

[110] In the present proceedings ACCI disagreed 38 with the Panel’s conclusion in the 2011–12 Review decision that “the legislative framework reveals a preference for consistent variation determinations across all modern awards ... the notion of a fair safety net of minimum wages embodies the concepts of uniformity and consistency of treatment.”39 But ACCI did not advance a merit argument in favour of an alternative construction of the relevant provisions of the Act.

[111] The Panel is not persuaded to depart from the conclusions reached in past review decisions in respect of this issue.

[112] The second observation we would make is that the Panel has previously dealt with the proposition, advanced by the ARA in the present proceedings, that the Panel should hand down an interim decision or statement prior to handing down a final decision. We infer from the ARA’s submission that such an interim decision process is intended to allow individual employers or their representatives to then seek differential treatment on an award, sectoral or some other basis.

[113] The Panel has repeatedly noted the practical difficulties associated with such an approach having regard to the requirements in the Act regarding the time for completion of each annual wage review, commencement of the minimum wage determinations and the national minimum wage order and publication of any variation to modern award minimum wages. 40 The ARA has made no attempt to address any of these difficulties in its submission.

[114] The Panel is not persuaded to depart from the conclusion reached in the 2013–14 Review decision that an interim decision mechanism is not necessary or practical. 41

[115] In this context we would also endorse the Panel’s previous observations about the practical difficulties arising from the absence of any mechanism in the Act to revisit a determination varying modern award minimum wages after an annual wage review has been completed. In the 2012–13 Review decision the Panel said:

“[96] The current legislative framework ensures that annual wage reviews are conducted in a timely way and provides certainty for businesses and employees, by nominating the operative date of any wage increases flowing from such reviews. But the interaction of ss.157(2), 285(1) and 286 does give rise to a practical difficulty in that there is no mechanism in the Act for revisiting a determination varying modern award minimum wages after an annual wage review has been completed.

[97] Apart from the context of an annual wage review, or the system of 4 yearly reviews of modern awards, the Commission may only vary modern award minimum wages if it is satisfied, among other things, that the variation is justified on work value grounds (s.157(2)). As a result of this legislative inflexibility, a small or large business; a sector; or a region facing circumstances warranting the deferral of, or exemption from, an annual wage review increase; can only make such an application in the context of an annual wage review. So if the adverse circumstances arose in, for example, July, the businesses affected would have to wait until the following year (i.e. the next annual wage review) before they could seek relief.” 42

[116] The practical difficulty created by the present legislative framework remains and it adversely impacts on the ability of parties to seek an exemption or deferral from a variation in modern award minimum wages on the basis of exceptional circumstances which arise after an annual wage review has been completed. This is an issue for the Parliament.

[117] We now turn to consider a submission in relation to regional differentials.

[118] Business SA contended that in adjusting minimum wages the Panel should have regard to any regional impacts and submitted that:

“While acknowledging that the minimum wage provides a safety net for employees, the Fair Work Commission also needs to account for the fact that its decision has varying impacts across industries and regions. Consequently, the Fair Work Commission should consider regional variations in accordance with the recommendation put forward by the recent National Commission of Audit.”  43

[119] The reference to the National Commission of Audit refers to the report of the National Commission of Audit Towards Responsible Government, which makes the following observation:

“Having a single national minimum wage disadvantages workers attempting to gain a job in states like Tasmania and South Australia where wages and the costs of living are generally lower than in other States.

There are wide differences in wage rates between States. While the minimum wage is around 45 per cent of the Australian Capital Territory Average Weekly Earnings, it is around 65 per cent of Average Weekly Earnings in Tasmania.

The Commission recommends that a different minimum wage apply in each jurisdiction, with a transition period over the next 10 years. In particular, the Commission proposes the minimum wage in each jurisdiction be equal to the lower of the Minimum Wage Benchmark described above, or 44 per cent of Average Weekly Earnings in that jurisdiction by 2023. The wage would then increase in line with growth in that jurisdiction’s Average Weekly Earnings.” 44

[120] This observation is reflected in Recommendation 28: The minimum wage, which recommends, among other things:

“transitioning the minimum wage in each State and Territory to the lower of the ‘Minimum Wage Benchmark’ or 44 per cent of Average Weekly Earnings in that jurisdiction by 2023.” 45

[121] To the extent that Business SA is advocating different modern award minimum wage rates by reference to State boundaries, such an approach is proscribed by the Act. The Act constrains the extent to which modern awards may include regional variations based on State or Territory boundaries. Section 154(1) provides as follows:

“General rule—State-based difference terms must not be included

(1) A modern award must not include terms and conditions of employment (State-based difference terms) that:

(a) are determined by reference to State or Territory boundaries; or

(b) are expressed to operate in one or more, but not every, State and Territory.” 46

[122] In a different context, the Panel previously expressed doubts about whether it had the power to defer the operation of a variation determination by reference to State or Territory boundaries. 47

[123] The Panel takes into account the circumstances of different regions, industries and sectors as part of its broader consideration of the national economy. In addition, the Panel has scope to consider whether exceptional circumstances should result in delaying or deferring the operation of a variation to a modern award or adjustment of the NMW and has outlined the process for such considerations in previous reviews. 48

(iii) Setting the national minimum wage independently of wage rates in modern awards

[124] ACCER seeks a ruling from the Panel that “the Act requires that the national minimum wage be set independently of the setting of wage rates prescribed by awards made under the legislation.” 49 ACCER contends that:

“[t]he award classification system has operated to constrain the adjustment of the NMW. Since 1997 the NMW and the C14 award rate appear to have been tied together by a Gordian Knot. The provisions of the current legislation, properly applied, cut that knot.” 50

[125] As we have mentioned, the Panel must conduct and complete an annual wage review in each financial year. The Panel’s task is set out in s.285(2) of the Act:

“In an annual wage review, the FWC:

(a) must review:

(i) modern award minimum wages; and

(ii) the national minimum wage order; and

(b) may make one or more determinations varying modern awards to set, vary or revoke modern award minimum wages; and

(c) must make a national minimum wage order.”

[126] National minimum wage orders are dealt with in Division 4 of Part 2–6 of the Act (ss.293–299). A national minimum wage order sets the NMW (s.194(1)(a)) and special national minimum wages (s.294(1)(b)) for employees in the following classes:

(i) junior employees

(ii) employees to whom training arrangements apply

(iii) employees with disability.

[127] A national minimum wage order must also set the casual loading for award/agreement free employees (s.294(1)(c)).

[128] The national minimum wage order applies to award/agreement free employees. 51 An award/agreement free employee cannot be paid less than the rate of pay specified in the national minimum wage order. Further, if an enterprise agreement applies to an employee and the employee is not covered by a modern award then the employee’s base rate of pay under the enterprise agreement must not be less than the rate specified in the national minimum wage order (s.206(3)).

[129] The minimum wages objective applies to the review and making of a national minimum wage order. This follows from the fact that the minimum wages objective applies to the performance or exercise of the Commission’s functions under Part 2–6 of the Act (s.284(2)(a)) and the review and making of a national minimum wage order is one of the Commission’s functions under Part 2–6. The objects of the Act are also relevant to the performance or exercise of this function (s.578), a point to which we shall return shortly.

[130] The review and variation of modern award minimum wages is a separate function to that of reviewing and making a national minimum wage order, though the two functions are related. We accept the proposition that there is no legislative requirement to set the NMW rate at the same level as the lowest modern award minimum wage rate. The setting of the NMW rate is a discretionary decision which takes into account the statutory considerations relevant to that discrete task.

[131] As we have mentioned, the modern awards objective applies to the exercise of functions and powers in setting, varying or revoking modern award minimum wages as part of an annual wage review. The modern awards objective is not relevant to the review and making of a national minimum wage order. Section 134(2) deals with the application of the modern awards objective:

“(2) The modern awards objective applies to the performance or exercise of the FWC’s modern award powers, which are:

(a) the FWC’s functions or powers under this Part; and

(b) the FWC’s functions or powers under Part 2–6, so far as they relate to modern award minimum wages.

Note: The FWC must also take into account the objects of this Act and any other applicable provisions. For example, if the FWC is setting, varying or revoking modern award minimum wages, the minimum wages objective also applies (see section 284).”

[132] The review and making of a national minimum wage order does not involve the performance or exercise of the Commission’s modern award powers and hence the modern awards objective has no application to that function.

[133] There is considerable overlap between the considerations the Panel is required to take into account under the minimum wages objective and the modern awards objective, though as we have noted some of these considerations are not expressed in the same terms. In particular, both the minimum wages objective and the modern awards objective require the Panel to take into account:

• promoting social inclusion through increased workforce participation (s.284(1)(b) and s.134(1)(c));



• relative living standards and the needs of the low paid (s.284(1)(c) and s.134(1)(a));



• the principle of equal remuneration for work of equal or comparable value (s.284(1)(d) and s.134(1)(e)); and



• various economic considerations (s.284(1)(a) and s.134(1)(d), (f) and (h)).

[134] However the modern awards objective also requires the Panel to take into account “the need to encourage collective bargaining” (s.134(1)(b)). The minimum wages objective makes no express reference to any such consideration. As we have mentioned it is the minimum wages objective, not the modern awards objective, which is relevant to setting the NMW rate.

[135] The real issue is: what practical difference does this point make? The answer is: not much. While the minimum wages objective does not direct the Panel to take into account the need to encourage collective bargaining in setting the NMW rate, the Panel is required to take the objects of the Act into account in performing that task. As we have set out earlier (see paragraph [90] above) one of the means by which the object of the Act is given effect is “through an emphasis on enterprise level collective bargaining” (s.3(f)). While not expressed in the same terms as in the modern awards objective it is plain from s.3(f) and a reading of the Act as a whole that one of the purposes of the Act is to encourage collective bargaining. It is appropriate that we take that legislative purpose into account in setting the NMW rate.

[136] As mentioned earlier, the making of a national minimum wage order and the review and variation of modern award minimum wages are separate but related functions. They are related because s.285(2) provides that in exercising its powers to set, vary or revoke modern award minimum wages, the Panel “must take into account the rate of the national minimum wage that it proposes to set in the Review.”

[137] It follows that as part of the decision making process in an annual wage review the Panel must first form a view about the rate of the NMW it proposes to set in the review (taking into account the statutory considerations relevant to that discrete task) and then take that proposed NMW rate into account (along with the other relevant statutory considerations) in exercising its powers to set, vary or revoke modern award minimum wage rates.

[138] No party contended that the Act precluded the Panel from continuing to conduct annual wage reviews in a manner that involves a concurrent assessment of the NMW and modern award minimum wages. Nor does the Act suggest some sort of bifurcated process whereby the Panel first makes a national minimum wage order (which includes setting the NMW), before turning its mind to exercising its review powers to set, vary or revoke modern award minimum wage rates. So much is clear from s.285(2), which suggests that the two tasks take place in the context of a single annual wage review; s.285(3), which refers to the NMW rate the Panel proposes to set in the review (as opposed to the NMW rate as currently set in a national minimum wage order (see s.135(2)); and the statutory direction that both the national minimum wage order and annual wage review variation determinations come into operation on 1 July in the next financial year (absent exceptional circumstances (ss.286 and 287)).

[139] Accordingly, as part of the annual wage review the Panel considers both the setting of the NMW rate and whether to make any variation determinations in respect of modern award minimum wages. Each of these tasks is undertaken by reference to the particular statutory criteria applicable to each function. As part of its decision making process the Panel first forms a view about the NMW rate it proposes to set in the review and then takes that proposal into account in exercising its powers to set, vary or revoke modern award minimum rates.

(iv) Reference household for setting minimum wages

[140] ACCER made submissions in relation to the single-person reference household, and characterised this as “an issue of law”. 52 It submitted that, upon the proper construction of s.284(1), the Panel is required to take into account the living standards and needs of the low paid with family responsibilities and that not to do so would be contrary to law:

“… upon a proper construction of the terms of the Fair Work Act 2009:

(a) the establishing and maintaining of a safety net minimum wage under section 284(1) of the Fair Work Act requires the FWC to take into account the living standards and needs of the low paid with family responsibilities; and

(b) the establishing and maintaining of a safety net minimum wage under section 284(1) of the Fair Work Act without taking into account the living standards and the needs of the low paid with family responsibilities would be contrary to law.” 53

[141] ACCER presented a number of arguments in support of its position on the reference household for setting minimum wages, including: a proper construction of s.284(1) of the Act; 54 accounting for the objects of the Act in the setting of minimum wages;55 the intention of Parliament in the exercise of powers under the Act;56 and consideration of international obligations.57

[142] ACCER submitted that the rulings on the construction of the statutory provisions concerning the single-person benchmark are required because “[t]here can be no living wage if the single-person benchmark is applied to wage setting under the Fair Work Act.”58

[143] The Panel is bound to take into account relative living standards and the needs of the low paid, as prescribed by the Act, without limitation.

[144] In this year’s review, as with previous reviews, the Panel’s decision reflects a range of considerations in taking into account relative living standards and the needs of the low paid. These considerations include (but are not limited to) single-person households.

[145] The Panel has received a number of other submissions in relation to the single-person reference household and the role of household circumstances in considering relative living standards and needs of the low paid. ACCER’s submission and those other submissions are addressed in Chapter 5.

3. The Parties’ Proposals

[146] The Panel received submissions from the Australian Government and State governments, the Federal Opposition, collective bodies representing employers and employees and other organisations. The proposals advanced varied significantly, in terms of both the quantum and form of any proposed increase to the NMW and modern award minimum wages. A number of submissions identified issues for consideration without proposing a particular outcome. Some submissions recommended that there should be no increase in the NMW or to modern award minimum wages, 59 while the CCIQ proposed a flat dollar increase with exemptions for certain sectors.60 A summary of proposed minimum wages adjustments as well as claims for any exemptions or deferrals is set out at Appendix 1 and the claims for exemptions and differential outcomes are addressed in Chapter 9. This chapter summarises the parties’ proposals in respect of adjustments to the NMW and modern award minimum wages.

Proposals for a flat dollar increase

[147] A number of business and industry associations supported flat dollar increases, although views varied as to the appropriate quantum. ACCI, Australian Federation of Employers and Industries (AFEI), Australian Retailers Association (ARA), CCIQ, and Victorian Automobile Chamber of Commerce (VACC) proposed an increase to the NMW and modern award minimum wages of not more than $5.70 per week. 61 ACCI recommended a “cautious and constrained approach” given current economic conditions “including continued softening in the labour market”62 and submitted that:

“Participation in paid work is critical to maintaining adequate living standards and to prevent poverty and social exclusion. Structural changes in the economy have the potential to magnify the consequences of unemployment with many people finding they no longer have skills in line with demand. This heightens the risk of people being unemployed for longer periods of time or vacating the labour market entirely. The minimum wage function must not exacerbate the risk of unemployment for those most vulnerable in the labour market.” 63

[148] The ANRA supported an increase to the NMW and modern award minimum wages of $9.00 per week, 64 submitting that such an increase would be “affordable for retail employers and will avoid putting retail jobs at risk.”65

[149] The South Australian Wine Industry Association recommended no increase to the NMW and modern award minimum wages, but in the event the Panel decided to award an increase, “it should be a flat increase that is fair to all employees and capped no higher than the rate of inflation.” 66

Proposals for a percentage increase

[150] Three submissions put forward proposals for a percentage increase. Ai Group proposed a 1.6 per cent increase be applied to both the NMW and modern award minimum wages, which represents an increase of $10.25 per week in the NMW and an increase of $12.00 per week in the C10 rate. 67 Ai Group submitted that it based its proposal on a number of factors, in particular:

“The best that can be said for the Australian economy in 2015 is that it is underperforming. This underperformance is evident across a range of key economic measures including GDP growth, business profitability, real incomes, productivity, inflation, employment and investment. ...

Raising Australian minimum wages beyond a modest amount would further damage Australian competitiveness.” 68

[151] Master Grocers Australia and Liquor Retailers Australia (MGA/LRA) recommended an increase of not more than 1.2 per cent (or $8.40 rounded to the nearest 10 cents) to the NMW and modern award minimum wages and submitted that an increase in excess of this amount would “adversely affect independent supermarkets and liquor stores.” 69

[152] The National Farmers’ Federation (NFF) submitted that “the softening in Australia’s economy suggest that restraint is warranted” and that a 1.1 per cent increase in modern award minimum wages and the NMW “is appropriate in the current environment.” 70

Proposals for a tiered approach

[153] Three submissions put forward proposals for a tiered approach. 71 The ACTU recommended a flat dollar increase of $27.00 per week to the NMW and to modern award minimum wages up to and including the C10 level,72 and a 3.6 per cent increase to all modern award minimum wages above that level.73

[154] A flat dollar increase of $27.00 per week is equivalent to an increase of about 3.6 per cent at the C10 level and a larger percentage increase for the classifications below the C10 level, ranging from around 3.8 per cent at the C11 level to 4.2 per cent at the NMW and C14 level.

[155] The ACTU submitted that:

“Awarding the increase we seek in this Review would not only prevent further erosion in the relative living standards of the low paid, but would begin the vital task of restoring ground that has been lost. We project that, if awarded in full, the increase we seek would result in the NMW being restored to around 44% of average weekly full-time earnings. This would be a modest boost from its current level of 43.4%, but still below its level in 2011 (44.3%).” 74

[156] United Voice supported the ACTU’s submission and submitted that “[in] order for the minimum wage to be set at a level that reflects the rising cost of living in Australia, there must be a significant change in the approach to how the minimum wage is applied.” 75

[157] The ACTU also sought a direction that a Full Bench be convened to consider a claim to vary the model superannuation term in modern awards to provide for a 0.5 per cent increase in employer superannuation contributions. This issue is dealt with in Chapter 2 of this decision. The ACTU’s proposed increases to the NMW and modern award minimum wages are said to be formulated on the basis that its claim in respect of superannuation will succeed. The ACTU sought a higher (albeit unspecified) increase to the NMW and modern award minimum wages if its superannuation proposal is not successful. 76 United Voice also supported this element of the ACTU’s claim.77

[158] The Australian Catholic Council for Employment Relations (ACCER) also put forward a tiered approach. ACCER proposed a flat dollar increase of $18.70 per week for all modern award minimum wages below the C10 level, and a 2.5 per cent increase for all modern award minimum wage rates equal to or above the C10 level. 78

[159] In addition, ACCER’s claim in respect of the NMW comprises a flat dollar increase of $18.70 per week and “a further amount of $10.00 per week” (that is a proposed new NMW rate of $669.60 per week). ACCER also proposed a variation to modern award minimum wages to ensure that the “minimum wage rate in all awards be no less than $669.60 per week” (i.e. the proposed new NMW). 79 In the public consultations ACCER submitted that its objective, over time and to the extent that there is capacity to do so, was to lift the NMW and the lowest modern award minimum rate, to the lowest classification rate for a cleaner under the Cleaning Services Industry Award 2010 and that ACCER seeks to achieve that objective by “a targeted approach in successive wage reviews.”80

Other proposals

[160] Business SA proposed an increase of 0.9 per cent, or $5.70 per week, reflecting an “expected CPI increase of 2% adjusting for the 2013 and 2014 above CPI increases (1.1% in total) which resulted from the Minimum Wage Review in those years.” 81

[161] In a joint submission, the Australian Hotels Association (AHA), Tourism Accommodation Australia (TAA) and the Accommodation Association of Australia (AAA) recommended no increase to the NMW but, in the event that the Panel decided that an increase is justified, they jointly submitted that it should be no more than 0.9 per cent, or $5.70 per week. 82

[162] Many of the submissions did not advance a specific proposal as to the quantum of any increase to the NMW or modern award minimum wages, including all government submissions.

[163] Citing a challenging economic and labour market environment, the Australian Government supported a “cautious approach” and submitted that the Panel should take into account “the need to boost employment and job creation, as well as maintaining wages for those on the minimum wage and those on award classification wages.” 83

[164] The Western Australian Government submitted that “a greater degree of wage restraint may be necessary to support employers in a transitioning economy, following a number of years of very strong growth and significant real wage gains for employees” 84 and supported “a sustainable outcome ... that balances the need for an appropriate safety net of minimum and award wages against the capacity of employers to pay for wage increases.”85

[165] The New South Wales Government submitted that it is “essential that minimum wages are not set at a level that has a detrimental impact upon the capacity of business to absorb such increases which in turn may cost employment opportunities.” 86

[166] The Victorian Government, Queensland Government and South Australian Government each supported an increase to the NMW and modern award minimum wages but did not nominate a particular quantum. 87

[167] The Victorian Government submitted that the Panel “should provide an economically sustainable increase to low wage earners ... particularly noting growing inequalities in award wages and wages outcomes in agreements through bargaining.” 88

[168] The Queensland Government submitted that “an increase that maintains the value of award wages in real terms is economically sustainable and consistent with the objects of the FW Act. The national and Queensland economies are capable of accommodating a moderate increase to minimum wages.” 89

[169] The South Australian Government submitted that “the approach to minimum wages must be both economically responsible and fair” 90 and that the Panel should “consider increasing the national minimum wages taking into account the current economic context but also taking into account the broader context of ensuring that the real value of minimum wages is maintained.”91

[170] The Federal Opposition also supported an unspecified increase in the NMW and modern award minimum wages, arguing that any increase should be “fair and economically responsible.” 92

[171] The Australian Council of Social Service (ACOSS) submitted that the Panel should “substantially increase real minimum wages in order to significantly reduce the gap between them and median pay levels.” 93

[172] Australian Business Industrial (ABI) submitted that “economic conditions in Australia have continued to deteriorate” and recommended that “the Panel should adopt a cautious approach and confine itself to a modest sustainable increase that is significantly lower than the amounts that have been awarded in previous years.” 94 While not specifying a particular quantum of increase, ABI submitted that modern award minimum wages should be increased by the same percentage as the NMW.95

[173] The Housing Industry Association (HIA) did not propose a specific outcome but argued that the Panel should take “a conservative approach” 96 and submitted that, “it is important that minimum wage policy settings encourage further investment and employment and do not act to constrain business from operating in a way that enables them to meet changing market demands.”97

[174] Restaurant & Catering Australia urged the Panel to consider a range of issues in setting the minimum wage but made no submissions as to the quantum of any increase to the NMW or modern award minimum wages. 98

4. The Economy

[175] Both the minimum wages objective and the modern awards objective require us to take into account various economic considerations. These matters are discussed in more detail in Chapter 2, particularly at paragraphs [88] to [91]. The underlying intention of these provisions is that the Panel take into account the effect of its decisions on national economic prosperity and in doing so give particular emphasis to the economic indicators specifically mentioned in the relevant statutory provisions.

[176] This aspect of the Panel’s consideration involves an assessment of recent and projected economic conditions, significant issues arising from that assessment, and the impact of annual wage review decisions on those economic variables identified in the Act. In undertaking that assessment we have had regard to the submissions made and the economic information provided by the parties and published in the Commission’s Statistical Report–Annual Wage Review 2014–15 (Statistical Report).

Recent economic performance

Economic growth

[177] Economic growth, measured by real GDP growth, has been below trend growth over the past two years, improving toward trend growth over the year to March 2014, but moderating to 2.5 per cent growth (seasonally adjusted) over the year to the December quarter 2014.

Chart 4.1: Economic growth, annual and quarterly growth rates

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0.

[178] The contributors to GDP growth over the year to the December quarter 2014 were net exports, final household consumption expenditure, private investment in dwellings, with a more modest contribution from machinery and equipment and intellectual property products. The contribution of household consumption is also evident in nominal growth in retail sales of 4.0 per cent over the year to February 2015. 99 Slower growth in government final consumption expenditure and a reduction in government capital expenditure and private investment in non-dwellings construction detracted from the rate of GDP growth.

[179] Strong growth in RNNDI associated with the prolonged and large increase in the terms of trade over the decade to the September quarter 2011 produced a substantial cumulative gap between real GDP and RNNDI by the middle of 2011. The subsequent fall in the terms of trade from the second half of 2011 has seen RNNDI increase by less than GDP since that time, with RNNDI increasing by only 0.5 per cent (seasonally adjusted) over the year to the December quarter 2014. 100

[180] New capital expenditure, in volume terms, has fallen since late 2011, reflecting declining mining investment with a shift from the investment to the export phase of the resource industry growth of the past decade. Weaker private investment is also reflected in data over the year to the December quarter 2014, 101 which show (in trend terms):

• total new capital expenditure fell by 3.9 per cent;



• investment in Mining and Manufacturing fell by 16.1 per cent and 7.1 per cent respectively, whilst investment in other selected industries 102 rose by 16.1 per cent;



• investment in buildings and structures fell by 6.8 per cent; and



• investment in equipment, plant and machinery rose by 2.6 per cent.

[181] Growth in gross value added (GVA) by industry, which provides information about the sectoral contribution to aggregate growth, has varied between industry sectors over the past year. Seasonally adjusted data shows: 103

• GVA growth over the year to the December quarter 2014 in excess of GDP growth (of 2.5 per cent) in:



• the Information media and telecommunications industry (9.0 per cent);
• the Mining industry (8.9 per cent);
• the Accommodation and food services industry (8.0 per cent);
• the Financial and insurance services industry (6.1 per cent);
• the Health care and social assistance industry (5.3 per cent ):
• the Rental, hiring and real estate services industry (2.9 per cent);
• the Education and training industry (2.6 per cent); and
• the Other services industry (2.6 per cent); and

• GVA grew more slowly than GDP in all other industries, except the following, where it fell:



• the Professional, scientific and technical services industry; (–7.2 per cent);
• the Agriculture, forestry and fishing industry (–4.3 per cent);
• the Transport, postal and warehousing industry (–3.7 per cent);
• the Manufacturing industry (–2.1 per cent); and
• the Public administration and safety industry (–0.4 per cent).

Productivity and real unit labour costs

[182] A number of submissions addressed GDP per capita, labour productivity, the wages and profits share and unit labour costs. The Panel’s 2012–13 Review decision set out why productivity and related measures require consideration in minimum wage fixation. The 2012–13 Review decision also included a detailed account of what the key concepts measure and how they are related. 104

[183] Table 4.1 shows annual changes in productivity each year over the decade to the December quarter 2014 in seasonally adjusted terms. Productivity is best measured over a business cycle, so caution should attend short-term changes in measures of productivity. Productivity is defined as GDP per hour worked for “all sectors” and GVA per hour worked for the “market sector”. GDP per capita is also included in the table.

Table 4.1: Productivity measures, indexes and growth over the year

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0.

[184] GDP per hour worked rose by 1.6 per cent over the year to the December quarter 2014, following growth over each of the preceding three years. Growth in GVA per hour worked for the “market sector” has continued, albeit at a low rate in the most recent year, following strong growth over each of the proceeding three years.

[185] Addressing the issue of the growth in labour productivity, the ACTU drew the Panel’s attention to the RBA’s February 2015 Statement on Monetary Policy which included the following

“Labour productivity growth has been higher over recent years than over much of the previous decade. Recent improvements partly reflect the transition of the resource sector to a phase of strong growth in output’ which is much less labour intensive than the earlier period of significant investment. Growth rates of labour productivity and multifactor productivity in most industries are also higher than the average pace recorded through much of the 2000s.” 105

[186] The Australian Government submitted that over the 10 years to the June quarter 2014 “industries with the highest concentration of award-reliant employees generally had labour productivity growth well below the national average.” 106 The Australian Government noted that labour productivity in three of the four most award-reliant industries grew below the market sector average over the past decade, with productivity growth in those industries “even slower” over the last five years.107

[187] Data for productivity at the industry level, on a GDP per hour worked basis, provided by the ACTU showed considerable variation in productivity growth between industries around the all industries average of 1.5 per cent in 2013–14. The ACTU calculations from its submission are reproduced in Table 4.2. 108

Table 4.2: Growth in labour productivity by industry, 2013–14

Note: Labour productivity is measure by GDP per hour worked.

Source: ABS, Australian System of National Accounts, 2013–14, Catalogue No. 5204.0.

[188] The table shows productivity growth in each of the industries with the highest density of award-reliant employees in excess of the all industries average in 2013–14, other than for the Other services industry. Whilst the usual caveats about annual productivity statistics and their volatility apply, the data suggest some recent improvement in relative productivity in the most award-reliant industries.

[189] The ACTU and ACCER have again drawn our attention to the real value of the NMW lagging behind productivity growth over the past decade and a falling labour share of income over that period. Whilst recognising that the 2013–14 Review decision meant that low-paid workers did share in productivity growth over the past year, the ACTU submitted that the increase it proposed was necessary to “ensure that some of this lost ground is restored”. 109 The Panel considered the longer term decline in the labour share of income in its 2013–14 Review decision,110 concluding that:

“[169] It is our view that shorter-term volatility in the shares of labour and capital, caused by exceptional circumstances, do not provide a foundation for altering the NMW and award rates. We agree that changes in labour productivity that are sustained provide a firmer basis for any increase in real minimum rates. Longer-term trends in the labour share of national income should be kept in mind, as they can influence assessments of the fairness of, and relative standard of living provided by, minimum wages.” 111

[190] Nothing put to us in the current Review persuades us to depart from that assessment and the conclusions drawn.

[191] We are required by s.134(1)(f) of the Act to have regard to the likely impact of our decision on business, including on productivity. In the 2012–13 Review decision, the Panel concluded that:

“[175] There is no evidence that minimum wage increases arising out of the annual wage review will have an adverse impact upon productivity, at a aggregate level or at a firm level. The limited evidence before us suggests that minimum wages increases are more likely to stimulate productivity measures by some employers directly affected by minimum wage increases.”  112

[192] The limited evidence referred to in that passage was research into the impact of the UK national minimum wage on productivity 113 and OECD research.114

[193] The Australian Government submitted that enterprise bargaining provides a direct avenue for firms and workers to negotiate productivity offsets for real wage increases 115 and that a number of studies are broadly supportive of a link between productivity and bargaining.116 Pointing to the increase in award reliance in recent years, the Australian Government submitted that the Panel should consider how the safety net of minimum and award classification wages can encourage enterprise bargaining, and consequently, additional productivity.117 The Australian Government submission is premised on the proposition that minimum and award classification wage increases have acted as a disincentive to collective bargaining. For the reasons given in Chapter 7 we are not persuaded that minimum wage increases in recent years have acted as a disincentive to collective bargaining or that they have impeded productivity improvement through bargaining.

[194] The ACTU submitted that there is evidence that an increase in the minimum wage can be associated with a small, but statistically significant, increase in average productivity in low-wage industries compared with other industries, relying on, in addition to the research into the impact of the UK national minimum wage on productivity and OECD research referred to above:

• a 2011 study of increases in the federal minimum wage in the US in 2007–09 118, which identifies 23 different responsive cost-saving measures, most of which were forms of productivity improvement, including building employee skills and involvement;119 and



• a 2009 study comparing Denmark to New Zealand. 120

[195] ACCI and the Ai Group referred to the effect of regulatory costs on allocative efficiency and productivity, but provided no evidence in relation to the impact of minimum wage increases on productivity.

[196] The 2011 study referred to by the ACTU was the only further substantive evidence put to us in relation to the likely impact of our decision on productivity. It is consistent with the UK research and with the conclusion that minimum wage increases are more likely to stimulate productivity measures by some directly affected employers. We are not persuaded to depart from the conclusion reached in the 2012–13 Review decision and repeated in 2013–14. 121

Business competitiveness and viability

[197] After falling sharply in the GFC, the wages share steadily recovered until 2011 and has since been relatively flat. The profits share has fallen back in recent years after climbing sharply in the GFC and its aftermath. In 2014 it was at a lower level than in most years since 2010.

Chart 4.2: Profits and wages shares of total factor income

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0.

[198] Company gross operating profits, recorded in Chart 4.3, shows considerable volatility in quarterly profit growth over time. For all industries, including Mining, company gross operating profits (seasonally adjusted) fell by 5.9 per cent over the year to the December quarter 2014, reflecting a 19.3 per cent decline in Mining industry company gross operating profits. For the non-Mining industries, company gross operating profits rose by 1.2 per cent over the year. Of the award-reliant industries, company gross operating profits increased significantly in the Accommodation and food services; and Administrative and support services industries over the year to the December quarter 2014, grew less strongly in the Retail trade industry and fell significantly in the Other services industry.

Chart 4.3: Company gross operating profits, quarterly growth rates

Source: ABS, Business Indicators, Australia, Dec 2014, Catalogue No. 5676.0.

[199] Business bankruptcy rates, defined as the number of business-related bankruptcies divided by the number of self-employed and employers in the economy 122 (shown in Chart 3.3 of the Statistical Report) fell significantly in 2013–14, to the lowest level since 2008–09.

[200] Business exit rates were lower in 2013–14 than in 2010–11 in aggregate and in each of the award-reliant sectors. Business entry rates for all industries in 2013–14, at 13.7 per cent, exceeded business exit rates, at 12.7 per cent. 123 Entry rates exceeded exit rates for all industries other than Public administration and safety; Retail trade; Manufacturing; Mining; and Agriculture, forestry and fishing.

Inflation

[201] Chart 4.4 shows a number of measures of inflation. All measures show a continuing moderation in inflation. The CPI increased by 0.2 per cent in the March quarter 2015 and 1.3 per cent over the year. Significant contributors to the fall in CPI growth over the year were a 22.5 per cent fall in the automotive fuel component, which the ABS notes was the largest in the history of the automotive fuel series, beginning in September 1973 124 and the removal of the carbon price. Underlying inflation, measured as the average of the trimmed mean and weighted median measures, increased by 2.3 per cent and 2.4 per cent over the year, respectively. Annual growth in both the CPI and the underlying inflation measures was near its lowest level for the past decade. The Living Cost Index (LCI) for employee households increased by 0.9 per cent over the year to the March quarter 2015.

Chart 4.4: Measures of inflation—CPI, underlying inflation and LCI for employee households, growth rates

Note: The CPI measures quarterly changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). The LCI for employee households measures the change in the price of a ‘basket’ of goods and services which is based on the expenditure of employee households whose principal source of income comes from wages and/or salaries. CPI and LCI data are expressed in original terms.

Underlying inflation is calculated as the average of the trimmed mean and weighted median. These measures are calculated by the ABS following the methodology adopted by the RBA. The trimmed mean is calculated by ordering the CPI expenditure class components by their price change in the quarter and taking the expenditure weighted average of the middle 70 per cent of these price changes. The weighted median is the price change of the component in the middle of this ordering.

Source: ABS, Consumer Price Index, Australia, Mar 2015, Catalogue No. 6401.0; ABS, Selected Living Cost Indexes, Australia, Mar 2015, Catalogue No. 6467.0.

Wages

[202] Various measures of wages growth are available. Table 4.3 sets out annual changes in the WPI, AWOTE and AAWI for registered agreements over the past decade, together with increases in the C14 and C10 classification rates over the same period. Each measure reflects a continuing moderation in aggregate wages growth over the past year.

Table 4.3: Measures of nominal wages growth, annual percentage change

Note: The WPI is an index for total hourly rates of pay excluding bonuses in both private and public sectors. It is unaffected by changes in the quality or quantity of work performed. AWOTE is calculated by dividing estimates of weekly ordinary time earnings by estimates of the number of employees. Ordinary time earnings refers to earnings attributable to award, standard or agreed hours of work. It is calculated before taxation and other deductions such as superannuation. It also excludes payments which are not related to the reference period such as overtime, leave loading and redundancy payments. AWOTE estimates refer to full-time adult employees. AAWI measures the average percentage increase in the base rates of pay across registered agreements for the year. It does not take into account payments such as allowances, bonuses and increases linked to productivity. The C14 and the C10 are minimum award rates set under the Manufacturing and Associated Industries and Occupations Award 2010 and the former Metal, Engineering and Associated Industries Award 1998.

Source: ABS, Average Weekly Earnings, Australia, Nov 2014, Catalogue No. 6302.0; ABS, Wage Price Index, Australia, Mar 2015, Catalogue No. 6345.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2014, <http://employment.gov.au/trends-federal-enterprise-bargaining>; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

[203] Over the past year average wages growth has been relatively low. Chart 4.5, provided by the ACTU, 125 compares the most recent 12-month increase with the average for the past 10 years for eight different measures of wages. In all cases, the most recent rises have been below the 10-year average. This is particularly so for median full-time earnings, average weekly earnings and average compensation per employee. As shown in Table 4.3, the latest 12-month increase of 2.3 per cent and 2.8 per cent respectively for the WPI and AWOTE is the lowest for the past decade, and slightly below the unusually low growth seen in 2013.

Chart 4.5: Measures of wages growth

Note: Average compensation per employees and the WPI are seasonally adjusted. AWOTE and AWE are in original terms.

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0; ABS, Wage Price Index, Australia, Mar 2015, Catalogue No. 6345.0; ABS, Average Weekly Earnings, Australia, Nov 2014, Catalogue No. 6302.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010); ABS, Employee Earnings, Benefits and Trade Union Membership, Australia, August 2013, Catalogue No. 6310.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2014, <http://employment.gov.au/trends-federal-enterprise-bargaining>.

[204] Ai Group submitted that the growth in the WPI over the year to December 2014 is well below the average for the past decade for all but one of the major industries; this is not just a phenomenon of the mining sector.  126

[205] Bargaining outcomes, reflected in AAWI, are also below average but remain in excess of the growth in the other measures, including award rates, at 3.4 per cent in the December quarter 2014.

[206] The ACTU provided evidence that the recent growth in the WPI is lower than would be expected as a result of its usual relationship with the rate of unemployment. 127 They calculated that, if the relationship apparent over the period 1998 to mid 2009 were to prevail, then the WPI would have risen by around 3.4 per cent, rather than the observed 2.5 per cent over the year to the September quarter 2014. They concluded that “the Phillips Curve appears to have steepened in recent years.”128 This view is supported by the RBA in its February 2015 Statement on Monetary Policy.129

[207] The Assistant Governor (Economic) of the RBA, Christopher Kent, in a speech in mid 2014, concluded that:

“The slower growth of wages over the past couple of years has been a helpful part of the process of adjusting to the downturn in commodity prices and mining investment. The decline in wage growth has contributed, at the margins, to a turnaround in the real exchange rate and helped cushion the effect of slower growth of domestic demand on employment growth.” 130

[208] We have had regard to information provided by the Australian Government drawn from enterprise agreements, 131 the broader findings of Research Report 7/2013132 and the Australian Workplace Relations Study (AWRS) survey regarding the flow-on of annual wage review increases to non award-reliant employees (whether covered by an enterprise agreement or otherwise) and the reasons for this. While acknowledging that there is some uncertainty about the nature and extent of this impact, we accept that the impact of annual wage review decisions extends beyond award-reliant employees and employers.

[209] It remains the case that wages growth is not currently a source of inflationary pressure within the economy. Nor is it a source of declining capacity of Australian firms to compete in international markets.

Unit labour costs

[210] Chart 4.6 in the Statistical Report (reproduced below) presents an index of nominal and real unit labour costs. Nominal unit labour costs bring together wages growth and productivity. Real unit labour costs remove the effect of inflation from the nominal unit labour costs measure.

Chart 4.6: Unit labour costs, indexes—Dec–04 = 100

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0.

[211] Over the year to the December quarter 2014, labour productivity (real GDP per hour worked) grew by more than average nominal earnings per hour, resulting in a decline in nominal unit labour costs (declining by 0.2 per cent seasonally adjusted and 0.5 per cent in the non-farm sector). The non-inflation adjusted labour costs of producing a given quantity of output was lower in the December quarter 2014 than a year earlier. As a result of a fall in the GDP price deflator over the same period, real unit labour costs increased marginally over the year to the December quarter 2014 (by 0.6 per cent for the whole economy and 0.4 per cent for the non-farm sector, seasonally adjusted). 133 Real unit labour costs remain at historically low levels. The unit labour cost data show, in aggregate, an absence of cost pressures from the labour market and reflect the relatively weak growth in aggregate wages over the past two years.

Labour market

[212] Before considering the evidence on the state of the labour market, we note that the ABS is revising its treatment of the labour force series as part of its annual seasonal re-analysis of the series in early 2015, with implications for seasonally adjusted and trend labour force estimates. Further information is available on the ABS website. 134 In part because of these revisions, the Statistical Report now publishes labour force data in trend rather than in seasonally adjusted terms.

[213] Chart 4.7 shows growth in aggregate employment and hours worked in the Australian economy over the past decade.

Chart 4.7: Persons employed and aggregate monthly hours worked, millions

Note: Data are expressed in trend terms.

Source: ABS, Labour Force, Australia, Apr 2015, Catalogue No. 6202.0.

[214] Employment growth remains subdued compared to the stronger growth recorded from 2005 through to the GFC in 2008–09 and in the year immediately following the GFC, 135 although it has strengthened over the past year. Employment increased by 1.4 per cent over the year to December 2014 and 1.6 per cent over the year to April 2015. A greater proportion of employment growth has come in the form of full-time employment over the past year than was the case in the previous year, with full-time employment increasing by 1.4 per cent over the year to April 2015, compared to a 2.2 per cent increase in part-time employment. This compares to the year to April 2014, when total employment grew by 0.7 per cent due almost entirely to growth in part-time employment.136 The recent improvement in growth in full-time employment is also evident in growth in hours worked, shown in Chart 4.8, which shows growth in both employment and monthly hours worked, and displays the annual percentage change in each series.

Chart 4.8: Monthly hours worked and total employed—Annual percentage change

Note: Data are expressed in trend terms.

Source: ABS, Labour Force, Australia, Mar 2015, Catalogue No. 6202.0.

[215] Both employment and hours worked have grown at a more healthy rate over the past year or so, after a sharp fall in hours worked in late 2012. The growth rates, however, remain below pre-GFC levels. Hours worked has increased by 0.6 per cent over the year to December 2013, 1.3 per cent over the year to December 2014 and 2.6 per cent over the year to April 2015. Employment growth has been less volatile than changes in hours worked, and its recent improvement is clearly apparent in the chart.

[216] Table 4.4 shows the change in employment and hours worked by industry over the year to the February quarter 2015. It shows a considerable diversity between industries around the all industries (trend) employment growth of 1.5 per cent and the all industries (original) hours worked growth of 1.8 per cent, across a range of –18.9 per cent to 20.8 per cent for employment and –18.2 per cent to 18.5 per cent for hours worked (for the Mining and Arts and recreation services industries respectively). That diversity in employment outcomes is also evident in respect of the award-reliant industries, with two (Accommodation and food services and Retail trade) showing employment growth at or above the All industry average and three award-reliant industries (Administrative and support services, Health care and social assistance and Other services) recording reduced employment or growth at a lesser rate than for all industries. In respect of hours worked three industries (Accommodation and food services, Administrative and support services and Retail trade) had growth above the All industry average, whilst two (Health care and social assistance and Other services) had a decline in hours worked. We discuss the nature and definition of award-reliant industries at paragraphs [239] to [245].

Table 4.4: Change in employment and hours worked by industry—February quarter 2014–February quarter 2015

Note: Employment data are expressed in trend terms and hours worked data are expressed in original terms. Industries are ranked by employment growth rate.

Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2015, Catalogue No. 6291.0.55.003.

[217] Restaurant and Catering Australia (R&CA) again submitted that minimum wages “spiked significantly under the transitional arrangements in the Award Modernisation process that moved classifications and wages from the state award system to the federal Modern Award System,” 137 setting out increases for each state and territory in a table. It submitted that the increases had been over 20 per cent in some states.

[218] The award modernisation process did involve differential increases between states and territories in moving to common modern award classification rates (as required by s.576T of the Workplace Relations Act 1996 and, now, s.154 of the Act). On the basis of the R&CA table, between 30 June 2010 and 1 July 2014 the Grade 1 classification rate in the Hospitality Industry (General) Award 2010 (Hospitality Award): 138

• increased only as a result of annual wage review increases (by 17.6 per cent) in Victoria, Western Australia, Tasmania and the Australian Capital Territory;



• increased by less than annual wage review increases (by 16 per cent in South Australia), due to transitional reductions; and



• increased by more than annual wage review increases, due to additional transitional increases in Queensland (19.4 per cent), New South Wales (19.8 per cent) and the Northern Territory (21.3 per cent).

[219] It is unclear what implications R&CA draws from the differential increases resulting from a transition to the national classification rate in the Hospitality award for the purpose of the current Review. A consideration of changes in employment in the Accommodation and food services industry between February 2010 and February 2015 by state and territory discloses no association between the level of award wage increases and employment growth. 139 That relationship is shown in Chart 4.9 below.

Chart 4.9: Employment growth in Accommodation and food services and growth in the Grade 1 Hospitality Award rate—February 2010–February 2015, by state

Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2015, Catalogue No. 6291.0.55.003; R&CA submission, Figure 5.

[220] Chart 4.9 shows those states with same Grade 1 rate increase from June 2010 to the 2013–14 Annual Wage Review—Western Australia, Victoria, the Australian Capital Territory and Tasmania—have markedly different employment growth over the same period, the state with the lowest wage increases (South Australia) and two of the states with wage increases reflecting only the Review outcomes (Tasmania and the Australian Capital Territory) have had the worst employment outcome over the same period, whilst the Northern Territory recorded the largest growth in both wages and employment.

[221] The information shows no evident association between the rate of award wages growth (and additional increases resulting from transition to a national rate) and employment in the industry. Any impact of the higher growth in award wages on employment, if any, was swamped by other factors affecting employment growth.

[222] The employment-to-population ratio for people of working age (defined here as 20–64 years) controls for changes in the proportion of the adult population that is of working age and summarises the combined effects of changes in their desire and ability to find work. The changing age structure of the adult population means that it is necessary to focus only on those of working age (unless a more complete employment-by-age adjustment is made). 140 Table 4.5 shows how this ratio has changed over the past decade, and distinguishes full-time from part-time employment. The employment-to-population ratio rose over the past year, to 75.0 per cent in April 2015. The proportion employed in April 2015 is higher than it was in December 2004 and December 2005, although below its peak in 2010. The increase in the past year has been mainly in the form of full-time employment, particularly for men.

Table 4.5: Employment to population ratio—By total and by employment status, (20–64 year olds)

Note: The employment to population ratio is the number of employed persons expressed as a percentage of the civilian population. Change over year (ppts) calculates the percentage point change from the corresponding month in the previous year. All data are expressed in original terms.

Source: ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2015, Catalogue No. 6291.0.55.001.

[223] The aggregate figures conceal a continuing structural change in the labour market, away from the full-time employment of men and towards the part-time employment of both men and women. Demand for labour recently peaked in 2007, when the workforce had the best chance of obtaining the amount and type of work that it preferred. A comparison of the employment-to-population ratios of December 2007 and December 2014 shows men’s full-time employment has fallen from 73.3 to 71.3 per cent while their part-time employment has grown by 1.1 percentage points. The comparable figures for women are a fall in full-time employment from 40.9 per cent to 39.3 per cent and a rise in part-time employment of 1.6 percentage points. 141 Men of prime working age (25–54 years) who are employed part-time have the highest rates of under-employment.142 This is the background against which the modest rise in full-time and fall in part-time employment of men and the small rise in both full- and part-time employment of women should be considered.

[224] A related perspective is provided by the participation rate, which shows not only those who are employed, but also those who are actively looking for work (and thus are in the labour force). Changes in the participation rate are often interpreted to reflect the extent to which people are encouraged (or discouraged) to look for work, as well as changes in unemployment and employment. As with the employment-to-population ratio, we focus on the participation rate of people aged 20–64 years. The participation rate in December 2014 was higher, at 79.1 per cent, than in all but one year over the last decade, and rose again to 79.2 per cent in April 2015. The rise in the participation rate is particularly strong for women, being 4.2 percentage points higher in December 2014 than it was in December 2004, and 0.6 percentage points higher for men. The participation rate has risen by 0.5 percentage points over the year to April 2015. 143

[225] The ACTU submitted that the participation rate for people aged 15–64 is now slightly below the all-time high of 76.8 per cent recorded in late 2010. 144 It accounts for the ageing of the population by providing a weighted average of the participation rates of each age group.145 It concludes that nearly all of the decline in the participation rate of the working age population from its peak in 2010 is accounted for by the changing age structure.

[226] A different, but sensitive, measure of the state of the labour market is given by the level of retrenchments. The Australian Government provided this data. 146 They estimated that the level of retrenchments in the December quarter 2014 was “22 per cent lower than in the previous quarter and 10 per cent lower than in the same quarter last year.”147

[227] The changes in employment, hours worked, the participation rate, the employment-to- population ratio and retrenchments do not suggest particular weakness in the labour market for either males or females over the past year.

[228] In contrast, there has been a growth in unemployment, under-employment, long-term unemployment and youth unemployment, all of which are signs of under-utilisation of the workforce. We interpret this to mean that growth in the supply of labour has outstripped the growth in the demand for labour—both are growing, but at different rates.

[229] The unemployment rate has grown steadily from its recent low of 4.9 per cent in March 2011. As of April 2015, the (trend) unemployment rate was 6.1 per cent, 0.2 percentage points higher than a year earlier. However, the unemployment rate has remained steady since the middle of 2014. 148 Both the faster increase in employment and the slight fall in unemployment since October 2014 suggest some recent strengthening in the labour market.149

[230] Chart 4.10, from the Australian Government submission, 150 shows the recent history of trend unemployment for women, men and the total workforce. It shows the substantial growth in the unemployment rate, especially for men, over the past five years.

Chart 4.10: Unemployment rates by gender—April 2005–April 2015

Note: Data are in trend terms.

Source: ABS, Labour Force, Australia, Mar 2015, Catalogue No. 6202.0.

[231] Under-employment is a measure of the number of people who are employed part-time and would like to work more hours, plus the number of people who normally work full-time but are working part-time in the reference week for economic reasons—about 5 per cent of the total number of under-employed (there is not an equivalent regular measure of over-employment among the full-time workforce). 151 The latest detailed ABS measure of under- employment for those only employed part-time is for 2013. It shows a rise of under- employment among those who are employed part-time to 26 per cent, from 24.2 per cent over the previous two years.152 The overall under-employment rate has risen from 7.8 to 8.7 per cent over the year to February 2015.153 Ai Group submitted that this is the highest rate that has been recorded but observes, “this rise in under-employment is directly related to the rise in part-time work as a proportion of the labour force.”154

Long-term unemployment

[232] Long-term unemployment is particularly damaging to the economic wellbeing, health and social inclusion of those who experience it. It is, however, a lagging indicator of the state of the labour market, since it refers to those who have been unemployed for a year or more. A sharp rise in unemployment in one period will show up as a rise in long-term unemployment after a year, which then tends to become persistent. Once people become long-term unemployed, it becomes increasingly difficult for them to find work. Table 4.6 shows the number of people who were long-term unemployed over the past decade and their proportion of total unemployment. It is clear that one of the great benefits of the strong labour market prior to the GFC was the fall in long-term unemployment. The persistently high levels in recent years are troubling. But we note the view of ACOSS that it is not sensitive to modest changes in the levels of minimum wages:

“Another reason that even a large reduction in relative minimum wages would not substantially reduce unemployment and reliance on income support is that many long-term unemployed people are a considerable distance from employment at the levels of productivity now expected by employers. So lowering the ‘productivity bar’ a little will not help them to jump from joblessness into employment.” 155

Table 4.6: Long-term unemployment—Total, rate and percentage change

Note: Data are trend estimates. The long-term unemployed refers to the number of persons unemployed for 52 weeks or more. The long-term unemployed ratio refers to the number of long-term unemployed persons expressed as a percentage of the total unemployed population. The percentage change is calculated in relation to the corresponding month in the previous year.

Source: ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2015, Catalogue No. 6291.0.55.001.

Youth unemployment

[233] In contrast to long-term unemployment, youth unemployment is sensitive to changes in levels of employment, since variation in hiring rates is one of the first signals of changes in the level of demand for labour. Over the year to April 2015, employment of youth (aged 15–24 years) has fallen by 0.9 per cent and the youth unemployment rate has risen by 0.6 percentage points to 13.6 per cent, in trend terms. 156 As Chart 4.11 shows, the youth unemployment rate is always substantially higher than the aggregate unemployment rate. The ratio of the unemployment rate for 15–24 year olds in full-time education to the aggregate unemployment rate was 2.8 in April 2015, compared with a ratio of 1.8 for 15–24 year olds not in full-time education, and a ratio of 2.2 for all 15–24 year olds.

Chart 4.11: Ratio of the unemployment rates for 15–24 year olds—By educational attendance and persons aged 25 years and over to the aggregate unemployment rate

Note: All data are expressed in original terms and have been smoothed using the three-month moving average.

Source: ABS, Labour Force, Australia, Apr 2015, Catalogue No. 6202.0; ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2015, Catalogue No. 6291.0.55.001.

[234] In interpreting the current state of the labour market, the question at issue is whether the relationship between youth and aggregate unemployment has diverged from the patterns of the recent past.

[235] The answer to this question is not straightforward. There has been a marked rise in the levels of education of young people. As they stay longer in education, a rising number and proportion seek also to earn an income. In the five years to April 2015, there were 145 100 additional 15–24 years olds in full-time education—56 per cent of which reflects growth in the 15–24 year old population and the remainder reflecting a higher rate of participation in full-time education. The participation rate in full-time education of the youth cohort rose from 48.9 to 52.2 per cent. 157 The proportion of those in full-time education who were also in the workforce remained the same at just above 50 per cent—half of the increasing proportion of youth in full-time education are seeking employment, not always successfully. There was a rise of 28 500, or 11.2 per cent, in the number of youth who were unemployed over the five years to April 2015. This was reflected entirely in an increase in the number of unemployed youth in full-time education of 36 100, with the number of unemployed youth not in full-time education falling by 7700. The number of unemployed 15–19 year olds not in full-time education fell, offset by a lesser increase in the number of unemployed 20–24 year olds.158

[236] The rise in unemployment among youth signifies softness in the demand for labour. So too does the rise in their average duration of unemployment, from a low of 18 weeks in September 2008 to 30 weeks in January 2015. 159 But the increasing and varying combinations of education and employment that are occurring among youth makes it less straightforward to interpret the broader meaning of this signal.

[237] The ACTU concludes that:

“[w]hile youth unemployment has risen, the rise is more or less in line with expectations given the overall state of the labour market. That s[t]ate is, in turn, more or less in line with expectations given the pace of recent GDP growth. When real GDP grows at less than 3.2% a year, we tend to see unemployment rise in Australia. When unemployment rises, youth unemployment tends to rise even faster. That is what has occurred over the past couple of years: real GDP has not risen by 3.2% since September 2012, so unemployment and particularly youth unemployment have risen.” 160

[238] In our view there is not yet convincing evidence that the long-term relationship between youth unemployment and overall unemployment has shifted.

The award-reliant industries

[239] We now consider the circumstances of industries in which a relatively high proportion of employees are award-reliant workers based on the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006. Award reliance is a measure of the proportion of employees whose pay rate is set according to the relevant award rate specified for the classification of the employee and not set above that relevant award rate. Such information is obtained from the ABS Survey of Employee Earnings and Hours (EEH), 161 conducted in May every two years. It is a relevant measure in assessing the impact of annual wage review decisions because they impact directly on the wages paid to award-reliant employees.

[240] For present purposes, we set out in Table 4.7 the extent of award reliance in August 2008, May 2010, May 2012 and May 2014 by industry. In Chapter 5 we further assess the data concerning award-reliant employees and their characteristics.

Table 4.7: Award reliance by industry—2008, 2010, 2012 and 2014

Note: Award reliance is the proportion of employees in an industry that are paid exactly the award rate and are not paid more than that rate of pay.

Source: ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0.

[241] The 2014 data identify the Accommodation and food services (42.8 per cent); Administrative and support services (37.7 per cent); Retail trade (28.5 per cent); Other services (25.1 per cent); and Health care and social assistance (22.3 per cent) industries as the most award reliant, in that they are the industries in which the highest proportion of employees are award reliant. 162

[242] Table 4.8 summarises data for output, profitability, wages growth and employment in respect of the most award-reliant industries. It includes an average for the five award-reliant industries (where available) and an all industries average in the final two columns. The data for the preceding year is indicated in brackets.

Table 4.8: Economic indicators by award-reliant industries

Note: - indicates data not available. *Company gross operating profits are not collected for Health care and social assistance. The award-reliant industries selected are the five industries with the highest proportion of employees within the industry who are reliant on award rates of pay according to the EEH. The WPI and actual hours worked data are expressed in original terms. Employment data are expressed in trend terms. Employment growth for all industries is derived by adding employment across all industries.

Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2014, Catalogue No. 5206.0; ABS, Business Indicators, Australia, Dec 2014, Catalogue No. 5676.0; ABS, Employee Earnings and Hours, Australia, May 2014, Catalogue No. 6306.0; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2015, Catalogue No. 6291.0.55.003; ABS, Wage Price Index, Australia, Mar 2015, Catalogue No. 6345.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2014, <http://employment.gov.au/trends-federal-enterprise-bargaining>.

[243] The Panel has previously noted that the industry-level economic indicators show considerable volatility from year to year, within industries and between the most award-reliant industries—most especially growth in GVA, growth in gross operating profit and in hours worked. That is evident in the magnitude of the changes shown for some industries in Table 4.8, particularly in relation to those variables. Further, the AAWI growth in some industries may reflect the small number of agreements. For that reason, the industry sector data should be relied on for the broad picture shown, rather than the specific magnitudes.

[244] Table 4.8 shows that over the most recent 12 months:

• GVA increased more in the award-reliant industries than for all industries, other than Administrative and support services over the year to the December quarter 2014. The strongest growth (8.0 per cent) was recorded in the Accommodation and food services industry.



• Growth in all industries company gross operating profits was strongly influenced by a decline in Mining industry profits (see paragraph [198]). For non-Mining industries, the average growth was 1.2 per cent. Gross operating profits increased significantly in the Accommodation and food services and Administrative and support services industries over the year to the December quarter 2014. Gross operating profits in the Retail trade industry increased by more than the non-Mining all industries increase, and fell markedly in the Other services industry.



• Growth in the WPI in the award-reliant industries ranged from 2.0 per cent to 2.8 per cent, around the all industries average of 2.6 per cent over the year to the March quarter 2015.



• Growth in bargained wage outcomes for the December quarter 2014 in the award-reliant industries ranged from 2.9 per cent to 3.7 per cent, around the all industries average of 3.5 per cent, growing slightly less than the all industries figure in three of the five award-reliant industries.



• Employment, measured by persons employed, fell in two of the award-reliant industries (Other services and Administrative and support services) but grew at the all industries average in the Retail trade industry and at a significantly higher rate in the Accommodation and food services industry. Similar outcomes are evident in relation to growth in hours worked, save that hours worked grew in the Administrative and support services industry and grew more in the Retail trade industry than for all industries.



• As noted in paragraph [187], data for productivity at the industry level, on a GDP per hour worked basis, showed productivity growth in each of the industries with the highest density of award-reliant employees in excess of the all industries average, other than for the Other services industry.

[245] Once again, there is diversity in outcomes between the award-reliant industries. However, the data does not suggest that the most award-reliant industries have faced a relatively difficult economic environment over the past year. There is no basis in the industry data to conclude that recent minimum wage increases have significantly impacted on the economic performance of the award-reliant industries.

Small business

[246] There is no specific reference to small and medium-sized businesses in the minimum wages and modern awards objectives. However, the general object of the Act is directed to providing a balanced framework for cooperative and productive workplace relations which promote national economic prosperity and social inclusion for all Australians by, amongst other things, acknowledging the special circumstances of small and medium-sized businesses.

[247] In the 2013–14 Review decision we noted that:

“[225] Little direct evidence was put to us in relation to the economic circumstances confronting small businesses and the extent and manner in which they are differentially affected by them. There is no evidence to suggest that the economic conditions for small businesses have diverged materially from those of businesses generally within the industries in which they operate, as reflected in aggregate and sectoral economic data.” 163

[248] Many submissions drew attention to the general object of the Act and submitted that particular regard should be had by us to the special circumstances of small business. However, as in the past, little information was put to us in relation to the economic circumstances confronting small businesses. The most comprehensive submission concerning small business was that of the Australian Government. The Australian Government provided information in relation to the importance of small business within the Australian economy, by reference to output and employment, and drew our attention to the characteristics of small business and the role of small businesses in particular industry sectors. 164 That information was consistent with the RBA research paper relied on by ACCI in the 2012–13 Review.165

[249] The Australian Government submitted that small businesses have experienced a long period of weak trading conditions and the latest survey results suggest conditions are particularly challenging in the Accommodation and food services and Retail trade industries. 166

[250] The Australian Government’s submission concluded that “proportionately large changes in minimum and award classification wages will particularly affect small businesses compared to larger businesses as they are more likely to be award-reliant.” 167

[251] Having drawn our attention to the RBA staff assessment of business surveys and expressing caution about placing too much weight on a single survey measure, the Australian Government took us to results in relation to business conditions and profit growth from surveys undertaken by ACCI 168 and the National Australia Bank (NAB).169

[252] In respect of business conditions, both surveys show small, medium and large businesses experienced a significant GFC slump and immediate and marked post-GFC recovery, followed thereafter by a generally negative net balance. Whilst the NAB survey showed a positive balance for all three size sectors from late 2013 to mid 2014 and a decline thereafter, the ACCI survey shows improved confidence from 2012 to December 2014, although halting in late 2014 in respect to small businesses.

[253] In respect to profit growth both surveys show a negative net balance since 2010 but in each case improvement since mid 2013, to the extent that the NAB survey shows both medium and large businesses have more recently shown a positive net balance and small businesses a small negative balance. The ACCI survey shows improvement over the past two years, albeit with continuing net negative balances. On both surveys the position reported is strongest for large businesses and least positive for small businesses as had generally been the case, on both surveys, since the GFC.

[254] More recent NAB Survey data indicates that SMEs’ quarterly business conditions remained largely stable in March 2015, with trading and profitability conditions deteriorating, but offset by improved employment conditions. 170

[255] The net balance on the ACCI Employment Index shows a less favourable position reported by small business over all of the period since the early 2000s, a significantly more negative small business result from 2009 to 2011 and a relatively improved small business result thereafter. Although the index remains negative for all three size sectors at December 2014, some improvement has been evident over the past 18 months, particularly so for small businesses.

[256] The generally less positive response by small business respondents over a longer period reflects the particular features of small business and differences in the industries in which they operate rather than differences in the impact of general economic conditions on small businesses. The survey results included in the submissions of the Australian Government do not suggest recent circumstances impacting disproportionately on small businessses.

[257] There is no evidence to suggest that the economic conditions for small business have diverged materially from those of businesses generally within the industries in which they operate, as reflected in aggregate and sectoral economic data.

[258] In the 2015–16 Budget, the Australian Government announced a package of small business measures, including a tax cut to all small businesses through a 1.5 percentage point tax cut for small companies and a five per cent tax discount on income from unincorporated small business activity, available from the 2015–16 income year and an accelerated depreciation scheme that permits small businesses to immediately deduct assets less than $20 000. 171

[259] Although noting the previous approach of the Panel not to take account “the prospect of legislative change” in making our decision and the prudence of that approach in the circumstances of the previous budget in the current Parliament, 172 the ACTU submitted that we should take the measures into account in making our decision because the “small business tax measures will dramatically improve the affordability of a NMW increase for this relatively award reliant sector”.173

[260] The small business measures announced in the Budget have not received Parliamentary assent. For the reasons given in the 2013–14 Review decision in respect of proposed tax-transfer measures, 174 the prospect of legislative change in relation to the proposed small business measures is not something we propose to take into account in making our decision. We note, in any case, that the tax cuts component of the package has limited financial impact in the 2015–16 financial year.175

Other industry and sector circumstances

[261] ARA, AHA TAA & AAA, MGA/LRA, R&CA and VACC each submitted that the Panel should consider specific circumstances in their respective industries in assessing economic circumstances and the effect of minimum wage increases arising from the review. AHA, TAA & AAA focussed on profitability of hotel businesses 176 and the capability of businesses to sustain their employment levels and total hours available.177

[262] MGA/LRA submitted that the Full Bench decision in Modern Awards Review 2012 – General Retail Industry Award 2010 – Junior Rates (Junior Rates decision), 178 to extend the adult rate of pay to 20 year old employees under the General Retail Award 2010, had placed a heavy cost burden on affected employers and pointed to a range of other factors affecting its members in the retail industry.179

[263] HIA, VACC and NFF 180 submitted that the Re Modern Awards Review 2012—Apprentices, Trainees and Juniors decision181 (the Apprentices decision) together with the minimum wage increase granted in the 2013–14 Review had together adversely affected apprentice commencements. They argued that we should take that into account when considering the amount of any increase we decide upon this year. A similar submission was made in the 2013–14 Review. In its decision,182 the Panel noted that the Apprentices decision increased wage rates for first and second year apprentices who commenced their apprenticeship on or after 1 January 2014 and also ordered phasing arrangements. We note that the Full Bench in the Apprentices decision considered carefully the impact its decision would be likely to have on the employment of apprentices and on business. Nonetheless, a number of submissions drew our attention to the decrease in the number of commencements of apprenticeships since 2012. The reasons for the fall in commencements are complex. We note, for example, that the decline in commencements began well before the operation of the first phased increase determined by the Apprentices Full Bench. We also note that the number of apprentices completing their trade training has decreased substantially since late 2013. The National Centre for Vocational Education Research data referred to in the NFF submission suggest that at the beginning of this year there will be a slight increase in apprentice commencements. All of this data are relevant and we have taken it into account when deciding on the increase in modern award minimum wages.

[264] We have considered submissions by employer organisations raising specific circumstances in specific industries, together with supportive evidence and relevant ABS data in our assessment of economic circumstances and the impact of our decision. Consistent with our past approach, 183 submissions concerning changes to modern awards relevant to the consideration of the Panel have been taken into account in our overall assessment.

[265] VACC again drew attention to the closures of manufacturing plants owned by Ford in 2016, and Holden and Toyota in 2017, and their potential impact on businesses in the broader automotive industry. Any evidence of actual impacts of the closures, or the pending closures, on other employers in the sector and on the broader economy, and any implications for the Review decision, should be brought to the attention of the Panel as they occur, for its consideration.

Information from surveys

[266] As in the past, a number of employer associations relied on data derived from surveys of their members in relation to, amongst other things, economic conditions within their industries and, in some cases, the economic conditions confronting SMEs. The Australian Government relied on survey information in relation to the circumstances of small businesses relative to medium and large businesses. United Voice put submissions drawing on a survey of its members in the cleaning industry.

[267] In the 2013–14 and 2102–13 Review decisions we commented on the information drawn from such surveys, expressing our reservations about the reliability of the data from such surveys for the purpose of providing a representative picture at either an industry or an economy-wide level. 184 Whilst the survey material can add detail and depth to our understanding, unless the surveys have been conducted in accordance with well-established rules for the conduct of surveys, any additional understanding is of an anecdotal nature. In each of the decisions, we set out expectations of surveys which need to be met in order to provide representative information.

[268] Ai Group provided data from a series of performance surveys it undertakes in respect of the manufacturing, services and construction industries. 185 In the 2013–14 Review, Ai Group provided a selection of charts plotting the results from its Performance of Manufacturing Index against various relevant ABS data series,186 which show a reasonably strong relationship in respect of some, but not all, variables. At that time, Ai Group foreshadowed the publication, in late 2014, of internal research on the relationship between its survey data and relevant ABS data series, which was published in November 2014187 but was not provided in the current Review.

[269] Some submissions which relied on business surveys addressed the issues raised about business surveys in our past decisions. The Australian Government, in relying on a range of surveys of business outlook which provided information in relation to small business published by ACCI, NAB and Sensis, brought to our attention an assessment by RBA staff of such surveys (including the Ai Group performance surveys). 188 Those assessments, whilst advising care in the interpretation of the information provided and recommending a focus on a range of surveys in light of variability across the survey components and between the different surveys, provide useful additional and more timely information to official data and can assist in forecasting domestic demand, employment and investment growth.

[270] The VACC submission provided the results of a telephone survey of its membership undertaken by Nielsen Research 189 and included a copy of the report which included some information on research design and methodology. Whilst that information fell short of what is required to validate the statistical rigour of the survey, it does provide some information as to the survey methodology, including weighting undertaken to reflect the distribution, across industry sectors, of the VACC’s Victorian and Tasmanian membership.

[271] By contrast, MGA/LRA relied on a survey of its 2500 members conducted in January and February 2015 to ascertain “the impact of a wage increase on its members’ operations, and the impact of the 3 per cent in July 2014 on business operations”. 190 Whilst the survey results were provided, as an appendix, no information at all was provided in relation to the methodology of the survey, preventing any reliance on it other than as anecdotal opinion evidence of the 170 of its 2500 members who responded to the survey.

[272] R&CA relied on its 2015 Industry Benchmarking Survey, submitting that

“74.6 per cent of businesses would reduce employment opportunities as a result of an increase in the minimum wage. 48 per cent would specifically reduce hours, 5.6 per cent would reduce trading hours, 13 per cent would replace staff hours with those of the owner and 8 per cent would close.” 191

That information is broadly comparable to responses to a 2 per cent increase asked by the R&CA in the 2013–14 Review. 192 However, R&CA did not provide a copy of the survey report and provided no information about the methodology which would permit an assessment to be made about the statistical validity of the survey response or the extent to which, or the basis upon which, the information could be relied on.

[273] The R&CA survey information is not representative of the industry and cannot be relied upon as an indication of the effect of an increase in the NMW and award minimum wages when considered in the context of ABS and other broader data. Notwithstanding the 3 per cent increase in the NMW in the 2013–14 Review, the impact on employment in the industry reported by the 2014 R&CA survey in respect to a 2 per cent increase did not eventuate. As recorded in the Statistical Report, 193 employment increased by 6.9 per cent and hours worked increased by 13.5 per cent in the Accommodation and food services industry in the year to the February quarter 2015. Data for the Food and beverage services sector of the industry (which removes the Accommodation sector) recorded a 15 per cent increase in total employment in the year to the February quarter 2015.194

[274] Ai Group again provided information drawn from indexes of performance of manufacturing, services and construction and a national survey of chief executive officers (CEOs).

[275] The performance indexes show a mixed picture, reflecting different circumstances of the three sectors:

• Although rising by 0.9 points in March 2015 and 1.8 points in April 2015 to 48, the Australian Performance of Manufacturing Index (PMI) recorded the fifth consecutive month of contraction (readings below 50 points) in conditions following a brief stabilisation in November 2014. Manufacturing exports, as reported in the survey contracted in April 2015 after four months of expansion.



• After two months of mild expansion, conditions in the services sector eased in April 2015. The Australian Performance of Services Index (PSI) declined marginally by 0.5 points to 49.7 points in April. The three-month moving average for the PSI remains almost unchanged, at 50.5 points in April.



• The Australian Performance of Construction Index (PCI) declined by 3.1 points to 47.0 points in April 2015, indicating an overall contraction in industry conditions following signs of a mild recovery in March. The house building sector expanded for a second consecutive month, whilst major project activity—reflecting mining-related engineering construction and commercial construction—contracted at a lesser rate. 195

Economic outlook

[276] The economic outlook, reflected in Budget Paper No 1: Budget Strategy and Outlook Budget 2015–16, is to be seen in the context of the transition to broader growth in the Australian economy following the passing of the resource investment boom. That transition is underway, with Statement 1 noting an expansion in resource exports as investment projects reach completion, the lower exchange rate supporting services exports, solid household consumption growth, increased housing construction and increased non-mining investment in 2014, particularly in the services sector. 196 Against this, however, a sustained recovery in non-mining business investment is taking longer than expected.

[277] In the context of that transition, the Budget forecasts real GDP growth to increase from 2.5 per cent in 2014–15 to 2.75 per cent in 2015–16, before increasing further to 3.25 per cent in 2016–17. The unemployment rate is still expected to peak at 6.5 per cent in 2015–16, with lower forecast wage growth moderating the impact of lower forecast real GDP growth. 197

Global economic conditions

[278] Global economic conditions are expected to support growth in the Australian economy in the immediate years ahead. As shown in Table 4.9, Treasury forecasts improved world growth, with growth in Australia’s major trading partners expected to outpace world GDP growth, as growth remains strong in our faster-growing Asian trading partners.

Table 4.9: Budget forecasts—International GDP growth, per cent

Note: World growth rates are calculated using GDP weights based on purchasing power parity (PPP), while growth rates for major trading partners are calculated using export trade weights.

Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2015–16, Canberra, pp. 2–6.

[279] The improved international outlook, set out in the 2015–16 Budget, is consistent with IMF forecasts shown in Table 4.10.

Table 4.10: IMF real GDP growth forecasts, per cent

Note: Year-on-year percentage changes shown. World and domestic economy growth rates are calculated using GDP weights based on PPP.

Source: IMF, World Economic Outlook, April 2015, <http://www.imf.org/external/pubs/ft/weo/2015/01/>.

[280] The expected improvement in global economic conditions is due to an improved outlook in advanced economies and faster growth of Australia’s trading partners across Asia. Growth in China is moderating to a more sustainable pace with greater reliance on consumption, though risks remain if this transition is not smooth. Growth in the United States is expected to strengthen to above trend due to higher domestic demand and consumption as a result of lower oil prices and a stronger labour market. A weaker euro and lower commodity prices have led to stronger expectations of a recovery in the euro area.

The Australian economic outlook

[281] A positive outlook for the Australian economy recorded in the 2015–16 Budget papers is summarised as follows:

“The outlook for the Australian economy remains positive. It is one of the fastest growing economies in the advanced world. The fundamentals are solid with a lower exchange rate, lower petrol and electricity prices, rising household wealth and macroeconomic policy settings working together. The Australian economy is weathering one of the largest falls in commodity prices in its history, and is still expected to grow by 2� per cent in 2015–16 before increasing further to 3� per cent in 2016–17. The transition to broader-based growth is well underway. Household consumption, dwelling investment and exports are all lifting. On the other hand, a sustained recovery in non-mining business investment is taking longer than expected.” 198

[282] Treasury forecasts for the main economic aggregates are summarised in Table 4.11.

Table 4.11 Major economic parameters—2014–15 Budget

Note: Year average unless otherwise stated. In 2013–14 to 2016–17, employment, the WPI and the CPI are through the year growth to the June quarter. The unemployment rate is the rate for the June quarter.

Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2015–16, Canberra, 2015, p. 1-7.

[283] The GDP forecasts in Table 4.11 anticipate strengthening economic growth in 2015–16 and 2016–17, with continuing higher growth projected in the following years. Stronger GDP growth is expected to support stronger employment growth and a reduction in unemployment in 2016–17 and beyond, following a peak in unemployment at 6� per cent in 2015–16. The CPI is forecast to increase in 2015–16 to the middle of the RBA’s medium term 2–3 per cent target range, following the exceptionally low level in 2014–15, with continuing moderate wages growth supporting continuing low inflation. The fall in the exchange rate and the increase in the tobacco excise is expected to contribute to the forecast increase in the CPI.

[284] Wages growth is expected to increase slightly in 2016–17 from its historically low current levels.

Table 4.12 RBA economy forecasts, per cent

Note: Underlying inflation is calculated by taking the average of the weighted median and trimmed mean measures of inflation. Percentage change for the year-ended shown. Technical assumptions include A$ at US$0.80, Trade Weighted Index at 65, Brent crude oil price at US$70 per barrel. CPI and underlying inflation based on current legislation.

Source: RBA, Statement on Monetary Policy, May 2015, p. 65, Table 6.1.

[285] RBA forecasts, shown as over the year growth rates in Table 4.12, also reflect an improved growth outlook into 2016 and beyond and continuing moderate inflation outcomes.

[286] The RBA expects growth of Australia’s major trading partners to remain around its long-run average in 2015 and 2016, with the terms of trade expected to continue to fall over 2015. Australia’s GDP growth is forecast to remain below trend, with mining investment expected to fall sharply and continuing to subtract from growth. Household demand is expected to be supported by lower interest rates and relatively strong population growth, consumption growth is expected to pick up gradually and the household savings ratio is expected to decline.

[287] The RBA expects the unemployment rate to rise a bit further due to below-trend GDP growth and to peak in mid 2016. Wage growth is expected to remain subdued due to a degree of spare capacity in the labour market, with unit labour costs expected to remain well contained. These forces are also expected to put downward pressure on CPI inflation, with upward pressure coming from a depreciation of the exchange rate. The RBA also notes that while lower automotive fuel prices subtracted from CPI inflation in the March quarter 2015, they are expected to lead to higher inflation in the June quarter 2015, however, any future indirect effects of lower automotive fuel prices are difficult to gauge.

[288] Treasury forecasts for a broader range of domestic economic aggregates, recorded in the 2015–16 Budget papers, are shown in Table 4.13 below.

Table 4.13 Domestic economy forecasts—Growth rates^(a)

Note: The forecasts for the domestic economy are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level—a trade-weighted index of around 64 and a $US exchange rate of around 77 US cents. Interest rates are assumed to move broadly in line with market expectations. World oil prices (Malaysian Tapis) are assumed to remain around US$64 per barrel.

(a) Percentage change on preceding year unless otherwise indicated;
(b) Calculated using original data unless otherwise indicated;
(c) Excluding second-hand asset sales between the public and private sector;
(d) Percentage point contribution to growth in GDP;
(e) Though-the-year growth rate to the June quarter;
(f) Seasonally adjusted, through-the-year growth rate to the June quarter;
(g) Seasonally adjusted rate for the June quarter;
(h) The forecasts are underpinned by spot prices of $48 ($US/t, Free on Board (FOB)) for iron ore, $90 ($US/t FOB) for metallurgical coal and $60 ($US/t, FOB) for thermal coal.

Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2015–16, Canberra, p. 2-5.

[289] The outlook for growth remains positive, notwithstanding the unwinding of the resources investment boom, reflected in an expected fall in mining investment of around 25 per cent in 2015–16 and 30 per cent in 2016–17.

[290] Real GDP is expected to grow by 2� per cent in 2015–16, slightly slower than forecast in the 2014–15 Budget and still below trend, as a sustained recovery in non-mining business investment is taking longer than expected. However, stronger non-mining business investment is expected to drive an increase in growth to 3� per cent in 2016–17, although the pace and timing of the recovery in these sectors remains uncertain. The terms of trade are forecast to decrease further in 2015–16 and remain broadly flat in 2016–17.

[291] Stronger household consumption, supported by lower oil prices, lower interest rates and a modest fall in the household saving ratio, is expected to contribute to the forecast increase in growth, together with continued strong growth in dwelling investment, a strengthening of non-mining business investment and an improved contribution to growth from net exports.

[292] The 2015–16 Budget notes a more resilient than expected labour market performance in recent months, with stronger employment growth resulting in a downward revision to the forecast for the unemployment rate for the June quarter 2015 to 6� per cent. The unemployment rate is expected to increase in 2015–16 to 6� per cent due to forecasts for below-trend GDP growth before declining in 2016–17. While improved labour market conditions could lead to a higher participation rate, this is expected to be offset by the effects of an ageing population. 199 Looking forward, indicators such as job advertisements, vacancies and business survey measures of hiring intentions suggest continued growth in employment.200

[293] There remains uncertainty as to the timing of the transition from the resources investment boom and the pace and timing of stronger, more broadly based economic growth. The Budget identifies as positive risks the lower exchange rate, historically low interest rates, lower oil prices and sustained recovery in the US and euro area. Negative risks are identified as the reduction in mining investment, the pace and timing of the pick-up in non-mining investment, a risk that momentum in consumer spending could dissipate and the possibility that China’s transition to a more sustainable growth model may not be smooth.  201

[294] Budget Paper 1 summarises the uncertainty as to the timing of stronger, broadly based growth as follows:

“It is possible that conditions could improve more rapidly than expected if households increase their spending more rapidly, with businesses responding by ramping up investment. With interest rates at historic lows and rising capacity utilisation, there is some upside risk to the forecasts, particularly in 2016–17, if a stronger bounce-back were to materialise. However, if demand and confidence fail to lift, there is a risk that the recovery in non-mining business investment could be further delayed.”  202

[295] The Department of Employment’s Monthly Leading Indicator of Employment, based on the weighted average of a select number of economic and employment indicators, shown in Chart 4.12, bottomed out from its decline over the preceding 12 months in the latter part of 2014. This is consistent with other indicators such as job advertisements, vacancies and business survey measures of hiring intentions, which suggest continued growth in employment.  203

Chart 4.12 Department of Employment Monthly Leading Indicator of Employment

Note: The monthly leading indicator was revised following a review in October 2014.

Source: Department of Employment, Monthly Leading Indicator of Employment, May 2015, <http://employment.gov.au/department-employment-s-leading-indicator-employment-latest-release>.

Conclusion

[296] GDP growth remained slightly below trend growth over the past two years, improving toward trend growth over the year to the March quarter 2014 but moderating, to 2.5 per cent growth (seasonally adjusted) over the year to the December quarter 2014. Recent GDP growth has been mainly supported by net exports, final household consumption expenditure and private investment in dwellings. Slower resources investment has detracted from growth as the economy transitions to more broadly based growth.

[297] Labour productivity, measured by GDP per hour worked, rose by 1.6 per cent over the year to the December quarter 2014, following growth over each of the preceding three years. Growth in GVA per hour worked for the “market sector” has continued, albeit at a low level in the most recent year, following strong growth over each of the proceeding three years. Data for productivity at the industry level, on a GDP per hour worked basis, indicates productivity growth in the award-reliant industries in excess of the all industries average of 1.5 per cent in 2013–14.

[298] After falling sharply in the GFC, the wages share has steadily recovered until 2011 and has since been relatively flat. The profits share has fallen back in recent years after climbing sharply in the GFC and its aftermath.

[299] For the non-Mining industries, company gross operating profits rose by 1.2 per cent over the year to the December quarter 2014. Business bankruptcy rates fell significantly in 2013–14, to their lowest level since 2008–09.

[300] The rate of increase in the CPI moderated over the past year, reflecting a significant fall in the automotive fuel component, together with the removal of the price on carbon. Underlying inflation rose by 2.3 per cent and 2.4 per cent respectively for the trimmed mean and weighted median measures over the year to the March quarter 2015. The inflation rate remains within the RBA medium-term target band of 2–3 per cent. Each measure of wages reflects a continuing moderation in aggregate wages growth over the past year, to historically low levels.

[301] Employment growth remained subdued compared to the stronger growth recorded from 2005 through to the GFC in 2008–09 and in the year immediately following the GFC, although it has strengthened over the past year, growing by 1.6 per cent to April 2015. Hours worked grew more rapidly, by 2.6 per cent over the year to April 2015. The recent improved labour market outcomes are also evident in the greater proportion of jobs growth as full-time employment and a 1.8 per cent growth in hours worked over the year to March 2015. Reflecting GDP growth, the unemployment rate has grown steadily from its recent low of 4.9 per cent in March 2011, to 6.1 per cent in April 2015, although the unemployment rate has remained steady since the middle of 2014.

[302] The changes in employment, hours worked, the participation rate, the employment-to-population ratio and retrenchments do not suggest particular weakness in the labour market for either males or females over the past year. Conversely, there has been a growth in unemployment, under-employment, long-term unemployment and youth unemployment, all of which are signs of under-utilisation of the workforce.

[303] Recent economic outcomes for the award-reliant industries do not suggest that the most award-reliant industries have faced a relatively difficult economic environment over the past year and provide no basis to conclude that recent minimum wage increases have significantly impacted on the economic performance of the award-reliant industries.

[304] There is no evidence to suggest that the economic conditions for small businesses have diverged materially from those of businesses generally within the industries in which they operate, as reflected in aggregate and sectoral economic data.

[305] Stronger economic growth is anticipated in 2015–16 and 2016–17. The stronger GDP growth is expected to support stronger employment growth and a reduction in the unemployment rate in 2016–17, following a peak in unemployment at 6� per cent in 2015–16. The CPI is forecast to increase in 2015–16 from its exceptionally low level in 2014–15 to remain at the middle of the RBA 2–3 per cent target range. Wages growth is also expected to increase slightly in 2016–17 from its historically low current levels.

[306] The forecast increase in growth is expected to be supported by continuing stronger household consumption, with a modest fall in the household saving ratio, continued strong growth in dwelling investment, a strengthening of non-mining business investment and an improved contribution to growth from net exports.

[307] Recent economic performance and the improving economic outlook suggest a continuing transition from an economy driven by the resources investment boom toward stronger and more balanced growth, supported by improved world economic growth and historically low interest rates, lower oil and electricity prices and a lower exchange rate providing support to households and businesses.

[308] There remains, however, uncertainty as to the timing of the transition from the resources investment boom and the pace and timing of stronger, more broadly based economic growth. A sustained recovery in non-mining business investment is taking longer than expected. The 2015–16 Budget outlook reflects a pushing out of the projected timing of a return to trend growth and the peaking of unemployment, with a slower than expected transition to non-mining investment than previously forecast and growth in final public demand remains below that of GDP. Uncertainty as to the timing of a stronger non-mining investment contribution to economic growth provides a reason for some caution.

5. Relative Living Standards and the Needs of the Low Paid

[309] Both the minimum wages objective and the modern awards objective require us to take into account relative living standards and the needs of the low paid when setting minimum rates. Those matters must be considered, together with the other matters in ss.134(1) and 284(1) of the Act, in the context of the evidence relevant to a particular review. They are different, but related, concepts. 204

[310] The assessment of relative living standards requires a comparison of the living standards of workers reliant on the NMW and minimum award rates determined by the annual wage review with those of other groups that are deemed to be relevant.

[311] The assessment of the needs of the low paid requires an examination of the extent to which low-paid workers are able to purchase the essentials for a “decent standard of living” and to engage in community life, assessed in the context of contemporary norms.

[312] After considering some preliminary issues, we will examine relative living standards before turning to consider the needs of the low paid, although we recognise that the two concepts overlap.

Award reliance and low pay

[313] Since the last review, the ABS has published May 2014 data on award reliance from its EEH survey. The pay of 1.86 million employees (18.8 per cent of all employees) was set on the basis of the award only in May 2014. The ABS award reliance data by industry from 2008 to 2014 is set out in full in Table 4.7 and the proportion of employees whose wages are set by the various methods of setting pay is shown in Chart 7.1. The information presented is discussed in Chapters 4 and 7.

[314] Submissions noted labour market characteristics of award-reliant employees, drawn from the ABS data:

• women (21.4 per cent) were more likely to be award reliant than men (16.1 per cent); 205



• part-time employees (27.8 per cent) had higher rates of award reliance than full-time employees (12.8 per cent); 206



• casual employees (38.9 per cent) were more likely to be award reliant than permanent employees (13.3 per cent); 207



• Community and personal service workers (34.2 per cent), Labourers (31.4 per cent) and Sales workers (29.7 per cent) were the occupations with the highest rates of award reliance; 208 and



• the average age of award-reliant workers is 35.7 years, a little younger than the average of 39.5 for all workers. Most award-reliant workers are adults, with 84.6% of them aged 21 or over—the equivalent figure for all employees is 92.3 per cent. 209

[315] When assessing the needs of the low paid, the Panel has accepted that award-reliant employees who receive a rate of pay that (as a full-time equivalent) would place them below two-thirds of median (adult) ordinary time earnings provides a suitable and operational benchmark for identifying who is low paid. Most submissions in the current review have utilised that benchmark, although not necessarily the restriction to adults and to ordinary time earnings. The precise definition of earnings makes a substantial difference to the value of the median.

[316] Table 5.1 provides estimates of two-thirds of median weekly earnings based on data from the two main ABS surveys of the distribution of earnings; the Employee Earnings, Benefits and Trade Union Membership (EEBTUM); and the EEH. The surveys differ in their sources, coverage and definitions in ways that affect the absolute values of average and median wages (and hence the calculation of two-thirds of these values).

Table 5.1: Two-thirds of median weekly earnings

Note: Weekly earnings from the EEBTUM survey are earnings in the main job for full-time employees. The figure is for August of each year. Weekly earnings from the EEH survey are weekly total cash earnings for full-time non-managerial adult employees. The figures for 2008 are for August and for 2010, 2012 and 2014 for May.

n/a = not available.

*The EEBTUM publication has ceased. The ABS intends to continue collecting information on earnings in main job for full-time employees as a part of the new Characteristics of Employment (Catalogue No. 6333.0). The first release of this publication will be in mid 2015 and will include data for August 2014.

Source: ABS, Employee Earnings, Benefits and Trade Union Membership, Australia, various, Catalogue No. 6310.0; ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0.

[317] The EEH data for two-thirds of weekly total cash earnings for full-time non-managerial adult employees equated to approximately the C5 rate in the Manufacturing and Associated Industries and Occupations Award 2010 in May 2014.

[318] The Australian Government used two data sources to provide the Panel with information on low-paid workers: the Household, Income and Labour Dynamics in Australia (HILDA) survey and the EEH survey. Using the EEH data and defining low-paid workers as those earning less than $18.67 per hour, 210 the Australian Government submitted that there were “about 1.3 million low-paid employees in 2014, comprising 13.3 per cent of all employees.”211 It submitted that of the award reliant, about 34 per cent, or 630 400 were low paid.212 A similar number of employees who were not award reliant were also low paid. The Australian Government submitted that low-paid workers live in a broad range of household types,213 with a significant portion in higher income households.214 The EEH-based data also indicates that 1.6 per cent of all employees were paid at the equivalent of the NMW.

[319] The ACTU estimated that “43% of award only employees had hourly earnings at or below the C10 rate of pay in May 2014.” 215 Research Report 6/2013 found that around 75 per cent of adult award-reliant employees in the non-public sector were found to be on the equivalent of the C10 rate or less.216 The different estimates are difficult to reconcile. It is likely that one source of the differences is the way in which the casual loading is treated. Both the Australian Government and ACTU estimates make an adjustment to remove the effect of the casual loading. The EEH data do not. A second source of difference is whether the earnings distribution from which the median is derived includes junior employees. The EEH value used by the Australian Government appears to include juniors, apprentices and those on disability rates of pay, while the figure given in Table 5.1 above does not. The inclusion of these reduced rates will have the effect of reducing the median value, and hence of reducing the proportion of employees who are calculated to be low paid.

[320] The ACTU’s analysis based on unpublished EEH data, Research Report 6/2013, and the estimates of the Australian Government based on HILDA data, all suggest that a sizeable proportion—perhaps half—of employees who are award reliant are also low paid. If we accept that two-thirds of median adult weekly earnings in 2014 was $880, as derived from the EEH survey, and that this equates to the C5 level in the award structure, then an even higher proportion of the award reliant are low paid.

[321] A number of award-reliant employees are paid at levels that place them above the two-thirds of median earnings low pay benchmark and are thus not low paid in the usual sense. The circumstances of these employees are relevant to our assessment for the reasons that we set out in the 2013–14 Review decision:

“The modern awards objective applies to the adjustment of minimum wages through annual wage reviews. It requires the Commission (the Panel in the context of Part 2–6 of the Act) to ensure that modern awards provide a fair and relevant minimum safety net of terms and conditions, taking into account a range of matters, including the relative living standards and the needs of the low paid. It is necessary in doing so to have regard to whether minimum award rates at higher classification levels provide a fair and relevant safety net for award-reliant employees at those classification levels.” 217

[322] The circumstances of employees on the higher award rates are thus relevant to our assessment.

Single-person reference household

[323] In the 2013–14 Review decision, the Panel stated:

“[365] We note that a number of the proposed changes to the tax-transfer system will particularly impact on families, rather than individuals. The appropriate reference household for the purposes of setting minimum wages is the single-person household rather than the couple household with children. For this reason it should not be assumed that the tax-transfer payments announced in the 2014–15 Budget will be automatically taken into account in determining the level of the increase in next year’s Review.” 218

[324] ACCER put extensive submissions in relation to the use of the single-person household as the appropriate reference household for the purposes of setting minimum wages. Several other parties also addressed the issue.

[325] The ACTU accepted that the Panel has formed the view that single- person households are the appropriate reference household for the purposes of the annual wage review. But it contended that there was some ambiguity about the extent to which (if at all) the Panel has wholly substituted an inquiry into the single-person household, to the exclusion of all other households, for the legislative requirement to take into account relative living standards and the needs of the low paid in maintaining a fair safety net of minimum wages. 219

[326] ACCI submitted 220 that the most appropriate approach is to use the typical circumstances of award-reliant employees as the benchmark, noting that the single primary income earner with dependent children is much less typical in modern households than it was at the time of the Harvester221 decision.

[327] ACOSS submitted that decisions on the level of minimum wages should be informed by “benchmark” estimates of the cost of attaining a “decent basic living standard” for a single adult according to contemporary Australian standards, well above poverty levels, and that the tax-transfer system should meet the basic costs of raising children in a low-income family. 222

[328] Their reasons for selecting a single adult living alone as the “benchmark” family were:

• it is not feasible for wages to take account of the size of an employee’s family;



• for this and other reasons, Australia developed a national system of child endowment (now called Family Tax Benefit) to meet the minimum costs of raising children in low-income families; and



• it is generally accepted today that women are income earners in their own right rather than dependants of their partners. 223

[329] We have dealt, in Chapter 2, with the specific ACCER submission that the establishment and maintenance of a safety net minimum wage under section 284(1) of the Act requires the Commission to take into account relative living standards and the needs of the low paid with family responsibilities and not to do so would be contrary to law. We found that the Panel is bound to take into account relative living standards and the needs of the low paid, as prescribed by the Act, without limitation.

[330] Beyond the legal point, ACCER submitted that the Panel has:

“an obligation to set the NMW at a level that will enable workers with family responsibilities to achieve a basic acceptable standard of living by Australian standards, a standard of living that is above poverty as it is conventionally measured.” 224

[331] In the current Review ACCER sought that the setting of the NMW at such a level be achieved over time, 225 proposing a $28.70 per week increase in the NMW and variations to modern award minimum wage rates to ensure that such rates are no less than the proposed NMW. These increases are proposed as a step to “target poverty among single breadwinner families.”226

[332] To the extent that the ACCER submission suggests a particular primacy upon targeting poverty among single breadwinner families, it is problematic in two respects.

[333] First, the Panel has an obligation to balance a range of statutory considerations, and cannot simply target poverty of single breadwinner families. So much was accepted by ACCER in its submissions in the consultations. 227

[334] Relative living standards and the needs of the low paid is one of the statutory considerations we have regard to, both in relation to determining the NMW and in varying modern award minimum rates. The risk of poverty is one relevant consideration in addressing relative living standards and the needs of the low paid. We accept, as we did in the 2013–14 Review decision, that if the low paid are forced to live in poverty then their needs are not being met. 228

[335] However, relative living standards and the needs of the low paid, must be balanced together with the other considerations which we are required to take into account. The need to balance all statutory considerations brings into play the tension and complexity of the matters we have referred to in Chapter 2. An obvious example is found in the requirement to have regard to the performance and competitiveness of the national economy, including employment growth, when fixing the NMW and the likely impact on business, including employment costs and the likely impact on employment growth of varying modern award minimum rates. Additional increases in minimum wages directed to targeting poverty within single breadwinner families would extend to award-reliant employees without family responsibilities and those who were not sole wage earners within their household. This extended impact of the additional increase may raise potential employment effects, in circumstances where the risk of poverty among unemployed households is far higher than for any wage-earner household type. Other issues arise in respect of other statutory considerations.

[336] Second, in considering measures of poverty as one matter relevant to relative living standards and the needs of the low paid, it is necessary to consider information in relation to the circumstances of all award-reliant employees and the low paid, not simply workers with family responsibilities. Single-earner employees within families with dependent children are one group within the broader group of low-paid workers whose circumstances we consider as part of our consideration of relative living standards and the needs of the low paid.

[337] The Panel reaffirms its position that the appropriate reference household for the purposes of setting minimum wages is a single-person household rather than the couple household with children, for the reasons given by ACOSS. By appropriate, we mean that the single adult provides the starting point for our assessment of relative living standards and needs. We also consider relative living standards and needs of other types of families, including single-income families. We routinely examine the circumstances of different family types, including their equivalent disposable income relative to measures such as a poverty line and the situation of families who earn “average” wages. 229 While we pay particular attention to the impact of our decision on the needs of low-paid single adults, we also note and take into account the combined effects of changes in minimum wages and the tax-transfer system on the needs of other low-paid household types, including those with dependent children.

[338] It is not possible for changes in the NMW and modern award minimum wages to ensure that every employed family, whatever their composition, has sufficient income to meet their material needs. Society must, and does, require other instruments to assist in this task, the principle one being the tax-transfer system. Evidence that the net effect of the various factors acting upon the ability of an employed family to meet their material needs has the consequence of increasing or reducing levels of unmet need among low-paid and award-reliant families would be one factor that we would take into account in our decision. As noted in paragraphs [366] and [367], whilst real increases in the NMW between January 2010 and January 2015 contributed to increased real disposable incomes of single and couple households, with and without children, the tax-transfer system contributed more significantly to households with children, including single-income households over that period.

[339] We think that there is merit in the ACCI proposition that we pay particular attention to the actual circumstances of award-reliant households rather than hypothetical households in assessing information relevant to relative living standards and the needs of the low paid.  230

[340] Little information as to the prevalence of particular family types among those on the NMW or modern award minimum wages was put to us in the current Review. ACCER relied on 2011 Census data to submit that 55 020 families (or 7 per cent of all couple families with two children) with at least one full-time breadwinner were under their approximation of the 60 per cent relative poverty line. 231 The Australian Government drew on HILDA data, submitting that 14.6 per cent of award-reliant employees were in a couple household with a child under 15.²³²

[341] The HILDA data do not identify the proportion of award-reliant employees in a couple household with children under 15 who were single-income earners. It is clear that the proportion must be less than 14.6 per cent.

[342] We are aware that the AWRS collected information from employers and their employees on a range of workplace relations and employment matters. Unlike HILDA, the AWRS provides information on whether an employee is the sole, main or secondary income earner in their household.

[343] The relevant data collected have not been published and the parties in the Review have not had an opportunity to consider and put submissions in relation to the data. In that circumstance, it is inappropriate that we rely on the unpublished data for the purpose of our decision in the current Review.

[344] We intend to publish the AWRS information about whether award-reliant employees are the sole, main or secondary income earner in their household by reference to the various household types, including couple households with children under 15, in the statistical report for the 2015–16 Review. This will provide the parties with an opportunity to put submissions about the information and to bring any alternative evidence on the issue. It is important that our consideration of any proposals to address relative living standards of NMW and award-reliant employees and the needs of the low paid is better informed by some understanding of the incidence of award-reliant household types. We would be assisted by any information or submissions, including any submissions in relation to the AWRS data, in future reviews.

Relative living standards

[345] The Panel is required to take into account the relative living standards of those on the NMW and those on modern award minimum wages. This requirement relates to all modern award minimum rates, not just to those that fall below a threshold of low pay. 233

[346] The relative living standards of employees on the NMW and award-reliant employees are affected by the level of wages that they earn, the hours they work, tax-transfer payments and the circumstances of the households in which they live. 234 The net effect of these factors is summarised in the notion of equivalent household disposable income, a measure to which we return subsequently.

[347] Relative living standards focusses on the comparison between award-reliant workers and other employees, especially non-managerial employees, but does not exclude comparison with other groups. 235 However, for the reasons stated in previous reviews,236 we do not accept that low-earning business owners are low paid for the purpose of assessing the relative living standards and needs of the low paid.

[348] We now consider various indicators of relative living standards, commencing with movements in real earnings, other comparators, national income shares and tax-transfer changes, household disposable income and earnings inequality.

Real earnings

[349] Our assessment of relative living standards commences with an examination of how the wages of award-reliant employees have changed relative to prices.

[350] Although subject to year-to-year variation, the NMW has increased by 4.8 per cent in real terms over the past decade and in real terms in most years within the decade. The Australian Government submission noted that since its introduction in 1997, the NMW has increased on average by 0.8 per cent per annum in real terms (3.4 per cent in nominal terms). 237 The real value of the NMW increased by a cumulative 4.3 per cent over the five years to the December quarter 2014, reflecting in part the significant adjustment following the 2009 wage pause. The CPI-adjusted real value of the minimum wage rose by 1.3 per cent over the most recent year, to the December quarter 2014. The increase in the real value of award wages is consistent with the intention of the Panel in the 2013–14 Review decision to award an increase which would result in a modest improvement in the real value of modern award minimum wages.238

Table 5.2: Real national minimum wage and percentage change—2004–2014, December quarter 2012 dollars

Note: Real minimum wage calculated from C14 (the national minimum wage) and CPI (original data) from the December quarter of each year.

Source: ABS, Consumer Price Index, Australia, Mar 2015, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010.

[351] Chart 5.1 shows an index of the real value of selected award classification rates since December 2004. The chart shows real increases in the level of the C14 (and NMW) and C10 rates and real reductions in the higher C4 and C1(b)/L4 classification rates, notwithstanding real growth in each classification rate since the 2010–11 Review decision. The more pronounced real increases at the lowest classification level (C14) and more pronounced reductions at the C1(b)/L4 level, reflect the adjustment of award wages by “flat dollar” amounts prior to 2011. Since the 2010–11 Review decision, the NMW and all modern award rates have been adjusted by the same percentage and real wages have increased at each classification level at the time of each review adjustment.

Chart 5.1: Real value of selected minimum wage rates, December quarter 2004–March quarter 2015

Note: Up until 27 March 2006 minimum rates of pay are those in the Metal, Engineering, and Associated Industries Award 1998; between 27 March 2006 and 30 June 2009 the minimum rates are those in Australian Pay and Classifications Scale (and from 1 July 2009, transitional Australian Pay and Classification Scale) derived from the Metal, Engineering, and Associated Industries Award 1998; post 1 January 2010 minimum rates C14, C10 and C4 are those in the Manufacturing and Associated Industries and Occupations Award 2010 and the L4 rate from the Professional Employees Award 2010. For the purpose of the analysis, the L4 rate was calculated by dividing the annual salary for the L4 classification by 365 and multiplying by 7 to get a weekly rate from which a comparable real value could be derived.

Source: ABS, Consumer Price Index, Australia, Mar 2015, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010; Professional Employees Award 2010.

[352] We now consider broader measures of incomes of the workforce and the community as a whole, with particular focus on the comparison between award-reliant workers and other employees.

[353] Whilst volatile from year to year, all award rates of pay have fallen relative to measures of median and average earnings over the past decade, with much of that decline occurring between August 2005 and August 2008. The ratio of the C14 rate to median earnings has fallen marginally since the first annual wage review adjustment in 2010—from 54.3 per cent in August 2010 to 54.0 per cent in August 2013, although the ratio initially declined from 54.4 per cent in August 2009 to a historically low level of 52.7 per cent in August 2012, before increasing to 54.0 per cent in August 2013.

Table 5.3: The C14 rate relative to median weekly earnings of full-time employees

Note: Following the amendments to the Workplace Relations Act 1996 (Cth) taking effect in 2006, the federal minimum wage was set at $12.75 per hour, equivalent to $484.50 per week.

Source: ABS, Employee Earnings, Benefits and Trade Union Membership, Australia, Aug 2013, Catalogue No. 6310.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

[354] Chart 5.2 shows the changes in the nominal value of the C14 and C10 award rates, compared with changes in AWOTE, AWE and the WPI, over the 10 years to the March quarter 2015. It shows that the award rates have grown more slowly over the decade than the measures of average pay, although growth in the C14 rate has remained close to that of the WPI. The divergence between award rates and average wages has slowed or narrowed over 2013 and 2014, reflecting reduced growth in the AWOTE, AWE and the WPI.

Chart 5.2: Growth in C14 and C10 relative to AWOTE, AWE and WPI, cumulative percentage change

Note: This chart reflects available data for the period December quarter 2004 to December quarter 2014. WPI is the index for total hourly rates of pay excluding bonuses in both private and public sectors. It is unaffected by change in the quality or quantity of work performed. AWOTE is calculated by dividing estimates of weekly ordinary time earnings by estimates of the number of employees. It is calculated before taxation and other deductions such as superannuation. It also excludes payments which are not related to the reference period such as overtime, leave loading and redundancy payments. AWOTE estimates refer to full-time adult employees. AWE is the gross (before tax) earnings of employees (excluding salary sacrifice). The C14 and the C10 are minimum award rates set under the Manufacturing and Associated Industries and Occupations Award 2010 and the former Metal, Engineering and Associated Industries Award 1998.
AWOTE and AWE data are published on a half-yearly basis, hence, a quarterly time-series is derived through linear interpolation. AWOTE and AWE data are expressed in original terms.

Source: ABS, Average Weekly Earnings, Australia, Nov 2014, Catalogue No. 6302.0; ABS, Wage Price Index, Australia, Mar 2015, Catalogue No. 6345.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

[355] As shown in Table 5.4, the NMW has fallen from 44.3 per cent to 43.4 per cent of AWOTE over the five year period from November 2009 to November 2014. Greater reductions in the ratio of higher classification rates (C5 and C10) to AWOTE have occurred over the same period.

Table 5.4: Ratio of C14, C10 and C5 classifications to AWOTE wage measures—November 2009 and November 2014

Note: AWOTE data are expressed in original terms.
Source: ABS, Average Weekly Earnings, Australia, Nov 2014, Catalogue No. 6302.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

[356] While low-paid employees are not necessarily paid minimum award rates, it is useful to note the broader changes in overall levels of earnings inequality, by reference to real earnings. Overall levels of earnings inequality have increased over time. Chart 5.3 shows the growth in real weekly earnings by selected percentiles. It shows that real weekly earnings of full-time workers have become progressively less equal in the past decade—for each decile, the lower the earnings, the lower the rate of growth in earnings, reflected in the fanning out of the earnings distribution. While small relative to other deciles, there has been 15 per cent growth in the real earnings of even the lowest decile.

Chart 5.3: Real weekly total earnings (full-time adult non-managerial employees) by percentile—2004–2014

Note: Earnings figures are slightly inflated from May 2006 due to the inclusion of salary sacrificing. The EEH survey was not conducted in 2005, 2007, 2009, 2011 and 2013. Results for these years have been obtained through linear interpolation.

Source: ABS, Consumer Price Index, Australia, Mar 2015, Catalogue No. 6401.0; ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0.

[357] The rising earnings inequality over the past decade was concentrated in the period up to 2008 and has stabilised or even reversed since that time. As Table 5.5 shows, in the last three years there is no consistent relationship between the position in the weekly full-time earnings distribution and the rate of growth of earnings. While the 90th percentile of the distribution had, by a small margin, the largest rise in each year, the pattern among the other percentiles varied, and in 2013 and 2014 the increase for the 90th percentile was a little below the increase for the average. At least for this measure, the longer-term trend of steadily rising inequality has ceased in recent years.

Table 5.5: Real weekly total earnings (full-time adult non-managerial employees) by percentile—2011–2014, indexes—2004 = 100 and growth over year

Note: Earnings figures are slightly inflated from May 2006 due to the inclusion of salary sacrificing. The EEH survey was not conducted in 2005, 2007, 2009, 2011 and 2013. Results for these years have been obtained through linear interpolation.

Source: ABS, Consumer Price Index, Australia, Mar 2015, Catalogue No. 6401.0; ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0.

[358] The more unequal distribution of earnings over recent decades was addressed in many submissions. The Australian Government submission presented weekly earnings data from the EEH survey by percentile for 1994, 2004 and 2014 and noted that while real earnings grew across all percentile groups over this period, growth rates were highest among the higher paid. 239 Their table showed, for example, that from 2004 to 2014 real earnings for the 10th and 25th percentile of full-time adult non-managerial employees grew by 13 and 15 per cent respectively, while real earnings for the corresponding 75th percentile grew by 22 per cent and for the 90th percentile by 27 per cent.240 The Federal Opposition submission noted a greater dispersion in growth rates at the top and bottom of the earnings distribution over the longer period from 1975 to 2014.241

[359] The ACTU highlighted movements in the ratio of median earnings to earnings at the 10th percentile of the distribution (50:10 ratio), which increased between 1990 and 2012, but remained at 1.58 between 2012 and 2014. 242 The ACTU submitted that the stabilisation in the past two years mirrors the stabilisation of the minimum wage bite, suggesting a causal relationship between them.243 The Australian Government referred to (mainly US) research on the effect of changes in the value of minimum wages on income inequality. It concluded that “the literature finds at most a small effect of minimum wage increases on inequality.”244 It notes, however, the caution that must be exercised in applying these conclusions to Australia.

International comparisons of minimum wage levels/minimum wage bite

[360] Submissions were put to the Panel in relation to the minimum wage bite (the minimum wage relative to median earnings). The Australian Government and Ai Group focussed on the high minimum wage bite relative to selected OECD countries in 2013. 245 The ACTU, the Federal Opposition and the Queensland Government focused on recent changes to the Australian minimum wage bite compared with OECD countries, noting that it has experienced the largest decline in the OECD in the decade to 2013.246

[361] Relative to other OECD countries, Australia’s minimum wage bite has been high for decades, although it has declined somewhat over the last decade. While these facts might have some relevance for other matters that we must take into account, we have been given no new reasons to cause us to alter our view, that:

“data about the Australian minimum wage bite relative to other OECD countries is of limited significance in evaluating the relative living standards supported by award wages.”  247

Disposable income

[362] We next consider submissions and information put to us in relation to the disposable incomes of NMW- and award-reliant workers and households.

[363] The effect of taxes and transfers on disposable incomes of the low paid is relevant to the needs of the low paid and their relative living standards, both in terms of specific changes in the tax-transfer system at the time of a particular annual wage review and in assessing broader information in relation to measures of the relative income of the low-paid.

[364] As noted in the 2013–14 Review decision:

“[357] The tax-transfer system has a significant role to play in alleviating the impact of earnings inequality and supporting the living standards of low-paid workers. Wages do not entirely determine the living standards of the majority of individual wage earners who live in households with others. We agree with the view expressed in the past three review decisions that:

‘minimum wages and the tax transfer system are both relevant to the maintenance of an effective safety net for the low paid: each has its part to play. Wages play a particularly important role in the maintenance of disposable incomes for households not receiving income support payments.’” 248

Disposable income of award-reliant workers and households

[365] As it has in the past, the Australian Government calculated changes in real disposable income for a number of hypothetical household types with a NMW earner, in this case covering the period 1 January 2010 to 1 January 2015. 249 The changes modelled by the Australian Government are shown in Table 5.6.

Table 5.6 Changes in real disposable household income by selected household types—1 January 2010–1 January 2015

Source: Australian Government submission at p. 70, Table 9.5.

[366] The modelling shows increases for each household type modelled, where one or more person worked at the NMW. The increase in real disposable income for a single person who works full-time was 3.4 per cent over 5 years. The comparable increase for a single-earner couple with 2 children was 3.5 per cent. The difference is that for the sole person, all the rise came from the increase to the NMW, whereas for the couple it came predominantly from changes to the tax-transfer system.

[367] The Australian Government concluded that “even if the national minimum wage had remained constant in real terms, most minimum wage household’s disposable incomes would have improved in real terms due to changes in the tax-transfer system.” 250 This was not true, however, of single adults earning a full-time national minimum wage, of single-income couple households with a full-time NMW earner and no children and dual-income couple households who were both full-time NMW earners with no children. Their increase in real disposable household incomes of 3.7 per cent, 0.6 per cent and 3.7 per cent respectively, came from the rise in the minimum wage. The impact of the tax-transfer system is seen most powerfully for households with children. These results support the position taken by the Panel that the single adult is the most appropriate starting point for our assessment of relative living standards and needs, and that the needs of families with children are supported by the tax-transfer system.

[368] ACCER again provided longer-term data on disposable income for hypothetical single-earner households (couples and sole parents with two children) from January 2001 to January 2015. 251 While they calculated that the families earning AWOTE experienced a 97.7 per cent increase in disposable income over this period, the comparison figures for the NMW-reliant and C10-reliant families were 76.0 and 71.1 per cent respectively.252 ACCER submitted that this demonstrates that “since 2001 working families who rely on safety net wages have fallen behind middle income families.”253

[369] The ACCER calculations also show that whilst the disposable income of NMW-reliant and C10-reliant families have increased more slowly than AWOTE families, taxes and transfers have increased the real purchasing power of disposable incomes at the NMW/C14 and C10 levels, and reduced the difference compared to those with average earnings over the 14 year period shown.

[370] We note that, in addition to tax-transfer benefits, the government also assists households, particularly low-income households, through the provision of in-kind benefits, including social services, such as access to education, healthcare, public housing and concession cards, which has the effect of reducing dispersion in the income distribution among Australian households. 254

Tax-transfer system changes

[371] In their post-Budget submissions, the ACTU, 255 ACCER256 and the Federal Opposition257 referred to several measures in the 2015–16 Budget which, if implemented, would affect the disposable incomes and/or access to services of award-reliant employees and the low paid. For the reasons given in the 2013–14 Review,258 the prospect of legislative change in relation to these proposed measures is not something we propose to take into account in making our decision.

[372] The abolition of the carbon price in July 2014 was raised again in the current Review. The Australian Government’s initial submission to the Review proposed that the Panel should take into account the repeal of the carbon tax and the continuation of compensation for low- and middle-income households which was provided when the carbon price was introduced with effect from 1 July 2012.

[373] In the 2011–12 Review decision the Panel stated that:

“[166] this Review should not provide any additional assistance to compensate for the anticipated price effects associated with the introduction of a price on carbon. Compensation has already been provided through tax cuts and transfer payments and further compensation by minimum wage adjustments would amount to double dipping. It follows that we will, in effect, abstract the projected 0.7 per cent increase in the CPI from our deliberations” (emphasis added). 259

[374] That position was cited, affirmed and applied by the Panel in its 2012–13 Review decision. The Panel had regard to the effect of the carbon price on the CPI in 2012 in arriving at its decision in the 2012–13 Review. 260

[375] The carbon tax legislation was repealed on 17 July 2014, with the compensation package left as it was. 261 The direct impact on the CPI was reflected as early as the September quarter 2014. Further small reductions can be expected as changes in costs move through the economy.

[376] Award-reliant employees, as a result of the introduction of the carbon price, have received a lesser ongoing wage increase but having enjoyed ongoing compensation by government. The ongoing compensation was offset by a lower ongoing wage rise in 2012–13. In that circumstance, the Panel has had regard to the effects of the carbon price abolition by considering the published CPI, which reflects the actual price reduction resulting from the carbon price, for the purposes of the annual wage review.

Income inequality and poverty

Income inequality

[377] The Australian Government submitted that indicators of income inequality (all based on ABS data), including movements in the Gini coefficient, showed that “[w]hilst there has been gradual increase in income inequality over the past two decades, over the past decade it has been relatively stable”, 262 with strongest growth in real incomes occurring in some of the lower percentile groups between 2000–01 and 2011–12.263

[378] Referring to the Panel’s conclusion in the 2013–14 Review that the steadily less equal distribution of earnings over recent decades has not translated directly into rising inequality of equivalent household disposable income, 264 the ACTU submitted that “inequality of equivalised disposable household income remains high by historical standards, high by the standards of other OECD countries, and has risen particularly among the groups most relevant to Annual Wage Reviews”.265 The ACTU submitted that whilst the Gini coefficient fell from 0.336 in 2007–08 to 0.32 by 2011–12, equivalised household disposable incomes were more unequal in 2011–12 than at any time prior to 2007–08 for which data is available.266

[379] The ACTU argued that the sources of any fall in inequality (mainly increases in the base rate of pensions and falls in returns to assets post-GFC) were hardly relevant to wage earners. They provided a table, based on ABS data to 2011–12, that shows the Gini coefficient of equivalent disposable household income for all households (of all ages and family types) whose main source of income is wages and salaries. This shows that for all such households, inequality rose from 2003–04 to a peak of 0.27 in 2007–08, and has since fallen to 0.258 in 2011–12 (the latest year for which there is data). 267

[380] The ACTU and Australian Government submissions are consistent at least to the extent that the gradual increase in income inequality over the past two decades appears to have stabilised or even fallen from at least 2007–08, though at relatively high levels compared with the past.

[381] The evidence suggests that the forces for rising inequality have been subdued in the past few years. This reduces the work that needs to be done by the NMW and modern award rates to protect the relative living standards of the low paid.

Poverty and poverty lines

[382] The impact of the NMW and modern award minimum rates of pay upon an employee’s capacity to purchase the necessities of life and to engage in community life are relevant to considering the legislative requirement to take into account “the needs of the low paid”. 268

[383] Poverty entails an inability to buy the material resources required to meet basic needs. We accept that if the low paid are forced to live in poverty then their needs are not being met and that those in full-time employment can reasonably expect a standard of living that exceeds poverty levels. 269 We also accept that information about the low paid and award-reliant employees at risk of poverty is relevant in assessing relative living standards, given poverty measures typically involve benchmarks of community incomes or expenditure standards.