[2011] FWAFB 3400

 
[Note: This decision incorporates the correction contained in [2011] FWAFB 3400_PR510468 signed on 14 June 2011.]

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FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009

s.285—Annual wage review

Annual Wage Review 2010–11
(C2011/1)

JUSTICE GIUDICE, PRESIDENT
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT HARRISON
COMMISSIONER RAFFAELLI
MR VINES
PROFESSOR RICHARDSON
MR DWYER







MELBOURNE, 3 JUNE 2011

Contents

Paragraph

1.  Overview

1

2.  The Parties’ Proposals

18

3.  The Economy

43

 

3.1  Views of the Parties on the Economy

43

 

3.2  The Economy—Data

133

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

191

5.  Promoting Social Inclusion through Increased Workforce Participation

229

6.  Encouraging Collective Bargaining

269

7.  The Principle of Equal Remuneration for Work of Equal or Comparable Value

283

8.  The Form of the Adjustment

297

9.  Exceptional/Special Circumstances Claims

309

10.  The Decision

324

11.  Transitional Australian Pay and Classification Scales, Division 2B State Awards and Other Transitional Instruments

336

12.  Modern Award Minimum Wages for Junior Employees, Employees to Whom Training Arrangements Apply, Employees With Disability and Piece Rates

355

13.  Casual Loadings under Modern Awards and the Casual Loading for Award/Agreement Free Employees

378

14.  Special National Minimum Wages

382

15.  Special National Minimum Wages for Award/Agreement Free Employees to Whom Training Arrangements Apply

397

16.  Summary

409

Abbreviations

AAWI

Average Annualised Wage Increases

ABI

Australian Business Industrial

ABS

Australian Bureau of Statistics

ACCER

Australian Catholic Council for Employment Relations

ACCI

Australian Chamber of Commerce and Industry

ACOSS

Australian Council of Social Service

ACTU

Australian Council of Trade Unions

AFEI

Australian Federation of Employers and Industries

AHA

Australian Hotels Association

AHEIA

Australian Higher Education Industrial Association

Ai Group

Australian Industry Group

AIRC

Australian Industrial Relations Commission

ALCI

Analytical Living Cost Indices

ANRA

Australian National Retailers Association

ANZSIC

Australian and New Zealand Standard Industrial Classification

APCSs

Australian Pay and Classification Scales

APESMA

Association of Professional Engineers, Scientists and Managers, Australia

ARA

Australian Retailers Association

AWE

average weekly earnings

AWOTE

average weekly ordinary time earnings

C1(b)

Professional Engineer, Professional Scientist Level 4, Metal, Engineering and Associated Industries Award 1998 (and from 1 January 2010 the Professional Employees Award 2010)

C2(a)

Leading Technical Officer, Principal Supervisor/Trainer/Co-ordinator, Manufacturing Award

C3

Engineering Associate/ Laboratory Technical Officer—Level II, Manufacturing Award

C4

Engineering Associate/ Laboratory Technical Officer—Level 1, Manufacturing Award

C9

Engineering/Manufacturing Tradesperson—Level II, Engineering/Laboratory Technician—Level I, Manufacturing Award

C10

Engineering Tradesperson Level I, Metal, Engineering and Associated Industries Award 1998 (and from 1 January 2010 the Manufacturing Award)

C13

Engineering/Production Employee Level II, Metal, Engineering and Associated Industries Award 1998 (and from 1 January 2010 the Manufacturing Award)

C14

Engineering/Production Employee Level 1, Metal, Engineering and Associated Industries Award 1998 (and from 1 January 2010 the Manufacturing Award)

CCIQ

Chamber of Commerce & Industry Queensland

CCIWA

Chamber of Commerce and Industry of Western Australia

CPI

Consumer Price Index

DEEWR

Department of Education, Employment and Workplace Relations

Fair Work Act

Fair Work Act 2009

GDP

Gross Domestic Product

GFC

global financial crisis

Growcom

Queensland Fruit and Vegetable Growers Limited

HIA

Housing Industry Association

HILDA

Household, Income and Labour Dynamics in Australia

IMF

International Monetary Fund

Manufacturing Award

Manufacturing and Associated Industries and Occupations Award 2010

MGA

Master Grocers Australia

NAPSA

Notional Agreement Preserving State Awards

NFF

National Farmers’ Federation

NMW

national minimum wage

NRA

National Retail Association

NTWS

National Training Wage Schedule

OECD

Organisation for Economic Co-operation and Development

Panel

Minimum Wage Panel

R&CA

Restaurant and Catering Australia

RBA

Reserve Bank of Australia

SAWIA

South Australian Wine Industry Association

SWSS

Supported Wage System Schedule

Transitional Act

Fair Work (Transitional Provisions and Consequential Amendments) Act 2009

VACC

Victorian Automobile Chamber of Commerce

WPI

Wage Price Index

1. Overview

Introduction

[1] This decision concerns the second annual wage review under the Fair Work Act 2009 (Fair Work Act). Many interested organisations and bodies, whom we shall refer to collectively as parties, participated in the review by written submission. There were also public consultations in a number of regional centres with the principal public consultations taking place in Melbourne in the week of 16 May 2011. A number of research projects were undertaken or sponsored by the Minimum Wages and Research Branch of Fair Work Australia for the purpose of the review. All of the submissions, transcript, research reports, some additional economic data and the timetable were published on the Fair Work Australia website. 1

[2] The Minimum Wage Panel of Fair Work Australia (the Panel) is established under the Fair Work Act. The Panel is required to conduct an annual review of minimum wages in modern awards and to make a national minimum wage order. In addition, the Panel must review minimum wages in various transitional instruments annually. We deal with the provisions relevant to transitional instruments separately below.

[3] The Panel is required to conduct an annual wage review in each financial year. Any determination made varying minimum wages in modern awards in the review must come into operation on 1 July in the next financial year, unless there are exceptional circumstances. 2 A national minimum wage order must also come into operation on 1 July in the next financial year, subject to the same qualification.3 There is also a requirement that where a determination is made varying modern award minimum wages, Fair Work Australia must publish any varied wages in a modern award before 1 July in the next financial year and publish the wages in a modern enterprise award or State reference public sector modern award as soon as practicable.4

[4] The Fair Work Act sets out some important process requirements for the review. They include provision of a reasonable opportunity to all persons and bodies to make written submissions, publication of the written submissions and a reasonable opportunity for submissions to be made in reply. 5 In addition any research undertaken or commissioned by the Panel must be published so that submissions can be made addressing issues covered by the research.6

[5] The review of modern award minimum wages must be carried out in accordance with the minimum wages objective in s.284 and the modern awards objective in s.134 of the Fair Work Act. We set these provisions out in full later in this chapter. Modern award minimum wages include wage rates for junior employees, employees to whom training arrangements apply and employees with disability, and casual loadings and piece rates. 7

[6] In making a national minimum wage order the Panel must be guided by the minimum wages objective in s.284 of the Fair Work Act. Section 294 of the Fair Work Act provides that a national minimum wage order must contain a national minimum wage, special national minimum wages for award/agreement free junior employees, employees to whom training arrangements apply and employees with disability, and a casual loading for award/agreement free employees. The minimum wage order made by the Panel as a result of the Annual Wage Review 200910 decision 8 did not contain minimum wages for award/agreement free junior employees or employees to whom training arrangements apply.9 This is the first occasion on which a minimum wage order will contain minimum wages for such employees.

[7] The Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Transitional Act) requires that we review a number of transitional instruments. Specifically, Fair Work Australia must review minimum wages in transitional Australian Pay and Classification Scales (APCSs), Division 2B State awards and State reference transitional awards. The Transitional Act permits Fair Work Australia to make a determination varying any of those instruments. 10 We deal with these matters in more detail later in this chapter.

The statutory objectives

[8] The minimum wages objective in s.284(1) applies to both the review of modern award minimum wages and the review of the national minimum wage order. It reads:

284 The minimum wages objective

What is the minimum wages objective?

(1) FWA 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.”

[9] In the Annual Wage Review 200910 decision the Panel noted some of the important differences between these statutory criteria and the criteria which guided the former Australian Fair Pay Commission in its wage setting functions. 11 It is not necessary to refer to those again.

[10] In reviewing modern award minimum wages we are also required to apply the modern awards objective in s.134(1), which reads:

134 The modern awards objective

What is the modern awards objective?

(1) FWA 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

(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.”

[11] The parties made a variety of submissions about the manner in which we could best apply those criteria and we set out some of those submissions later.

Review of transitional instruments

[12] As noted already, we are required to review transitional APCSs, Division 2B State awards and State reference transitional awards and may vary them. These instruments arise from the application of the relevant provisions of the Transitional Act and the Fair Work (State Referral and Consequential and Other Amendments) Act 2009. The Transitional Act provides that relevant provisions of the Fair Work Act apply to the review of transitional instruments. 12

[13] Subject to some exceptions, Division 2B State awards terminated on 31 December 2010. 13 We deal with the exceptions later. It may be important to note that if a minimum wage in a Division 2B State award falls below the national minimum wage the national minimum wage applies instead.14

Publication of instruments

[14] We have already noted that there are provisions in the Fair Work Act setting out various requirements for publication of the results of the review including the requirement that any determination varying modern award minimum wages should operate from 1 July in the next financial year unless there are exceptional circumstances. 15 The requirement to publish varied modern award minimum wages is set out in s.292. It reads:

292 Varied wage rates must be published

(1) If FWA makes one or more determinations varying modern award minimum wages in an annual wage review, FWA must publish the rates of those wages as so varied:

(a) for wages in a modern award (other than a modern enterprise award or a State reference public sector modern award) — before 1 July in the next financial year; and

(b) for wages in a modern enterprise award or a State reference public sector modern award — as soon as practicable.

Note: FWA must also publish the modern award as varied (see section 168).

(2) The publication may be on FWA’s website or by any other means that FWA considers appropriate.”

[15] While there is a requirement under the Fair Work Act to publish varied minimum wages in modern awards, modern enterprise awards and State reference public sector modern awards, there is no requirement under the Transitional Act to publish varied wage rates in transitional APCSs, Division 2B State awards or State reference transitional awards.

[16] Some different considerations apply in relation to the publication of the national minimum wage order. Like a determination varying modern award minimum wages, a national minimum wage order must take effect from 1 July in the next financial year unless there are exceptional circumstances. 16 In addition, the legislation specifies the form in which the order must be expressed. Section 295 provides:

295 Content of national minimum wage order — other matters

Expressing minimum wages and the casual loading

(1) In a national minimum wage order:

(a) the national minimum wage, and the special national minimum wages, set by the order must be expressed in a way that produces a monetary amount per hour; and

(b) the casual loading for award/agreement free employees must be expressed as a percentage.

Note: The means by which the national minimum wage or a special national minimum wage may be expressed include:

(a) a monetary amount per hour; or

(b) a monetary amount for a specified number of hours; or

(c) a method for calculating a monetary amount per hour.

Terms about how the order applies

(2) The order may also include terms about how the order, or any of the requirements in it, applies.”

[17] With these statutory requirements in mind we now turn to deal with the proposals advanced by the parties.

2. The Parties’ Proposals

[18] This chapter discusses proposals put forward by the parties regarding both the quantum of any increases to modern award minimum wages and the national minimum wage, as well as exceptional circumstances claims. Some parties made general submissions without proposing a particular outcome. Submissions were received from a wide range of parties—Australian and State Governments, collective bodies representing employees, employers, other specific groups and private individuals. The following proposals were among the main ones advanced by the parties.

Proposals for increases to the national minimum wage and modern awards

[19] Recommended changes to the national minimum wage and modern awards varied between the submissions. The Australian Council of Trade Unions (ACTU), supported by the Association of Professional Engineers, Scientists and Managers, Australia (APESMA), the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, and the New South Wales Local Government, Clerical, Administrative, Energy, Airlines and Utilities Union, recommended a two-tiered approach of a $28.00 per week increase to the national minimum wage and for award-reliant employees up to the C10 level (the rate at which a qualified tradesperson is paid), and a 4.2 per cent increase for award-reliant employees above the C10 level. They argued that this gives the largest increase to the low paid, while maintaining relativities above the C10 level. The South Australian Government submitted that any increase should be considered in the context of current consumer price and wage price indices (2.7 per cent and 3.6 per cent) respectively. The Employment Law Centre of Western Australia (Inc.) recommended an increase of $28.00 per week for the national minimum wage.

[20] Employer groups proposed more modest increases to the national minimum wage and modern awards. The Australian Industry Group (Ai Group) proposed that the national minimum wage and modern awards be increased by $14.00 per week.

[21] The Australian Chamber of Commerce and Industry (ACCI), supported by the Victorian Automobile Chamber of Commerce (VACC), submitted that the national minimum wage and modern award wages should increase by no more than $9.50 per week. Similarly, the Australian Federation of Employers and Industry (AFEI) supported an increase of $9.50 to the national minimum wage.

[22] The Chamber of Commerce and Industry of Western Australia (CCIWA), Business SA and the Motor Trade Association of South Australia Inc. recommended a tiered approach of a $12.00 per week increase to the national minimum wage and modern award wages up to the C10 level, and an increase of $10.00 per week to wages above the C10 level.

[23] The Chamber of Commerce and Industry Queensland (CCIQ) recommended that, because of the natural disasters which have affected Queensland, the increase should be deferred for all employers in that State for 12 months and that the deferred increase should not exceed $10.00 per week.

[24] The Australian National Retailers Association (ANRA) recommended an increase of $11.50 per week to the national minimum wage, taking into account that many award-reliant retail employees will receive a scheduled wage increase on 1 July 2011 as a result of the second phase of the modern awards transition process.

[25] The National Farmers’ Federation (NFF) submitted that an increase of no more than $10.10 per week should occur to the national minimum wage and all modern award wages.

[26] The Australian Catholic Council for Employment Relations (ACCER) recommended an increase in two parts. The first part, in its primary position, is an increase of $16.60 per week to the national minimum wage, which would increase the national minimum wage to equal the current C13 level in the Manufacturing and Associated Industries and Occupations Award 2010 (Manufacturing Award). 17 In the second part, ACCER submitted that an increase equal to the Consumer Price Index (CPI) increase between March 2010 and March 2011 be applied to the national minimum wage and all modern award minimum wages.

[27] Australian Business Industrial (ABI) submitted that the Panel consider an increase of no more than 2.8 per cent. The Accommodation Association of Australia recommended an increase of no more than 3 per cent and that Fair Work Australia should give consideration to proposed tax cuts.

[28] The Master Grocers of Australia (MGA) submitted that there should be no increase to minimum wages so as to enable employers to absorb increased costs, retain employment levels and avoid increasing product prices and avoid the serious impact that a wage increase may have on the independent supermarket sector. Restaurant and Catering Australia (R&CA) also submitted that there should be no increase to modern award wages.

[29] The Australian Childcare Centres Association, in a reply submission, argued that proposals by bodies such as Ai Group, AFEI and ACCI, which recommended increases of between $9.50 and $14 per week, are more realistic than the ACTU’s proposal.

[30] The Australian Higher Education Industrial Association (AHEIA) submitted that minimum wages should be increased by an appropriate percentage in accordance with the latest economic data, in order to maintain their safety net standard. In its submission in reply, AHEIA advocated a 3.3 per cent increase, which relates to the CPI increase over the year to the March quarter 2011.

[31] Growcom (Queensland Fruit and Vegetable Growers Limited) submitted that an increase of $10.00 to $12.00 per week may be justified.

Proposals for adjustment where no quantum was specified

[32] A number of submissions did not recommend a specific change to the national minimum wage or modern awards. The Australian Government suggested that the approach to minimum wages must be both economically responsible and fair, and that low income workers should be able to share fairly in Australia’s growing prosperity.

[33] The Queensland and Western Australian Governments each recommended that the real value of the national minimum wage and award wages be maintained.

[34] The Victorian Government submitted that Fair Work Australia should have regard to regional differences in the ability of small and regional employers to remain competitive in the current labour market.

[35] The Australian Council of Social Service (ACOSS) recommended that Fair Work Australia should substantially increase real minimum wages, and that the decision should be informed by benchmark estimates of the cost of attaining a decent basic living standard for a single adult that should be well above poverty levels.

[36] The South Australian Wine Industry Association (SAWIA) submitted that any increase should be a flat dollar increase and should not be in excess of CPI.

[37] The Australian Hotels Association (AHA) recommended a moderate increase taking into account the practical implications of any increase for the hospitality industry.

[38] The Australian Social Inclusion Board submitted that a real minimum wage increase is warranted to help promote social inclusion.

[39] The Housing Industry Association (HIA) recommended that any increase be “highly constrained”.

Other submissions

[40] A number of employer groups submitted that should we decide to increase minimum wages, the operation of the increase should be deferred in the case of employers affected by recent natural disasters including floods and Cyclone Yasi. For example, CCIQ proposed a deferral for 12 months, ACCI and Business SA suggested up to 12 months, and Ai Group and Growcom suggested six months.

[41] The National Retail Association (NRA) submitted that Fair Work Australia should give special consideration to, and make specific determinations in relation to, the Fast Food Industry Award 2010 18 and the General Retail Industry Award 201019 in light of the increased costs to employers which it submitted will flow from the commencement of the key elements of these awards from 1 July 2010. The Australian Retailers Association (ARA) submitted that any increase should not be applied to award-reliant retail businesses.

[42] These matters are further considered in Chapter 10.

3. The Economy

3.1 Views of the Parties on the Economy

[43] The parties drew on established data sources to support their views of the Australian economy and the economic outlook. They emphasised different indicators of the economy and drew a range of conclusions from these data sources.

Economic growth

[44] A number of submissions noted that global economic conditions have continued to improve after the global financial crisis (GFC). However, world economic recovery remains patchy and uneven, with higher growth in developing economies and relatively moderate growth among major advanced economies. The Victorian Government submitted that the Australian economy has performed well over the past two years compared with most other advanced economies. The ACTU took a similar view, and noted that output and employment in much of the developed world are still below pre-crisis levels.

[45] A number of submissions noted that the Australian economy performed reasonably well in 2010. The Australian Government submitted that:

“[T]he Australian economy continued to grow solidly, with growth underpinned by a rise in exports, a recovery in machinery and equipment investment and a rebuilding of inventories.”20

[46] It also noted that solid economic growth was achieved despite the continued withdrawal of stimulus, the high Australian dollar, heavy rains in the eastern states and further evidence that households are taking a more cautious approach to their finances.

[47] However, ACCI argued that the below trend growth rate of the Australian economy in 2010 raises doubts about the durability and strength of the economic recovery. ACCI also described the economic recovery as “uneven” and characteristic of “a ‘two speed’ economy”:

“Elevated prices for coal and iron ore exports are expected to lead to strong growth in mining investment, which is expected to be one of the key drivers of economic growth over the coming year. At the same time, higher prices for key commodity exports have led the Australian dollar to appreciate sharply, placing enormous pressure on other trade-exposed sectors of the economy. The tourism, manufacturing and education services industries are facing increasingly difficult trading conditions due to heightened competitive pressure from abroad arising from the higher value of the exchange rate.”21

[48] Other parties also supported the view that Australian economic conditions are patchy. Business SA suggested that signs indicate a three-speed economy, with finance, mining and related industries performing strongly, trade-exposed industries and retailing performing poorly and other sectors performing moderately. Ai Group submitted:

“. . . Australia’s economic growth picked up in the last quarter of 2010 following a flat September quarter. The pick-up was however characterised by a large build up of stocks following a run down in stocks in the previous quarter.”22

[49] The ACTU submitted that the withdrawal of fiscal stimulus is detracting from economic growth, with private sector activity now the primary source of growth. Ai Group argued that the transition is bumpy, while ACCI argued that “[t]he economy is yet to experience a convincing transition from stimulus dependent public sector led growth to a durable private sector driven recovery”.23

[50] According to the ACTU, economic growth would have been even stronger in the quarter if not for the extreme weather events in December 2010 that led to natural disasters. The NFF submitted that wet conditions in the east and drought conditions in southern Western Australia have resulted in wide variations in the financial performance of farms across states and industries.

[51] ACCI argued that business investment was flat in 2010. However, the South Australian Government submitted that high commodity prices are resulting in a significant level of capital investment. A number of parties noted that the increase in commodity prices has led to historically high terms of trade. The ACTU quoted Dr David Gruen, Executive Director, Macroeconomic Group of the Commonwealth Treasury, who said that Australia is currently experiencing the largest sustained boost to the terms of trade in its history.24

[52] The Victorian Government noted that the rise in commodity prices as well as the difference in interest rates between Australia and other advanced economies have resulted in a high Australian dollar. According to ACCI, the high Australian dollar has heightened competitive pressures from abroad in the trade-exposed sectors of the economy outside of the mining sector. Business SA submitted that the higher Australian dollar is having a negative impact on manufacturing, tourism and education services, while strong growth in China and India is boosting resource exports. ACCI also quoted Dr Gruen as follows:

“[T]hose parts of the traded sector not linked in some way to the boom in the production of mining and energy commodities are facing severe and sustained competitive pressure from foreign competitors.”25

[53] Ai Group argued that there is a divergence in growth performance across industries with mining, wholesale trade, professional services and health services driving growth while others, such as accommodation and food services (trade-exposed), construction and other services have declined, based on data for 2009–10. ACCI submitted that just four industries are contributing almost 80 per cent of the growth in the economy. ACCI further noted that spillover effects from the terms of trade boom can create variations in economic conditions by industry. As well, it submitted that the mildly restrictive monetary policy stance adopted by the central bank has curtailed activity in interest-rate sensitive sectors of the economy, most notably the housing and retail sectors.

[54] ACCI also submitted that the three industries employing the largest number of award-dependent employees are all lagging the broader pace of economic growth and that the only sector employing a significant number of award-reliant employees that experienced strong growth in 2010 was Administrative and support services. However, the ACTU argued that the dispersion of growth rates between industries is around its long-term average.

[55] Parties noted the changing patterns in household savings and consumer spending. The Australian Government suggested that households continue to take advantage of strong income growth to increase savings. Ai Group submitted that softening private consumption is the primary cause of sluggish domestic demand and ACCI submitted that business investment is also responsible. ACCI argued that consumers are taking a more cautious approach to spending, despite rising household incomes, as consumer confidence has fallen, and households are also taking a more cautious approach to debt. AFEI claimed that higher interest rates, a slow housing market and consumers adjusting to a post-GFC world are responsible for subdued consumer spending.

[56] ACCI argued that the increased propensity of households to save is apparent in the retail trade and car sales statistics during the past 12 months. ANRA stated that the past 18 months have been some of the toughest conditions many in the retail sector have faced and that retail sales have been flat since September 2010. It said that the retail sector “is firmly in the slow-lane of the two-speed economy”.26 However, the ACTU argued that while growth in retail turnover was below average for much of 2010, it has since increased. It added that the rise in household savings reflects high income growth and not necessarily slow growth in consumption expenditure.

[57] The ACTU submitted that the Annual Wage Review 2009–10 decision had no apparent negative effect on economic growth and, in the year ended December 2010, there was no apparent negative effect on the growth rates of industries in which award-reliant workers are predominantly found and that some of these industries grew strongly. NRA submitted that most retail categories that are exposed to discretionary spending recorded negative growth in January 2011 and have been experiencing weak trading conditions for the 12 months to February 2011.

Productivity

[58] Many submissions noted that productivity growth has slowed in recent years. Citing a Productivity Commission submission to the House of Representatives Standing Committee on Economics Inquiry into Raising the Level of Productivity Growth in the Australian Economy, the Australian Government and the ACTU attributed the slowdown in market sector multifactor productivity to the Mining, Agriculture, and Electricity, gas and water industries.27 The ACTU also noted that those industries do not employ significant numbers of award-only workers. The ACTU argued that award-reliant industries, such as Retail trade and Administrative and support services, have experienced higher labour productivity growth over the past decade compared with the market sector overall. In its submission in reply, the NRA questioned whether recent improvements in productivity in Retail trade are due to increased labour efficiency.

[59] Citing the Productivity Commission’s submission noted above, the Australian Government identified a number of causes for the slowdown in productivity growth, such as growth in inputs in the mining sector not being fully reflected in increased output volumes, recent drought, capacity constraint effects, the rate of investment in physical capital and infrastructure, and the adequacy of expenditure on research and development.

[60] Both the Australian Government and the ACTU noted that despite slowing productivity growth over the past decade, the decline has been smaller than the average decrease across the Organisation for Economic Co-operation and Development (OECD) countries. The Australian Government submitted that in the most recent period from 2005 to 2009 the average annual growth rate of labour productivity in Australia was 1 per cent compared with 0.6 per cent for the United Kingdom, 1.6 per cent for the United States and 0.8 per cent for the OECD. However, the Australian Government warned that international comparisons should be used with some caution because of differences in factors other than those relevant to productivity performance.

[61] ACCI and CCIWA cautioned that the recent increases in productivity growth were the result of labour hoarding during the economic downturn rather than sustainable improvements in performance.

[62] The Australian Government referred to a number of pieces of research and submitted that the relationship between minimum wages and productivity is ambiguous and the research inconclusive. However, the ACTU argued that minimum wages can contribute to productivity growth by providing employees with an incentive to attain skills, as well as ensuring that uncompetitive firms are not able to pursue strategies based on undercutting their competitors’ unit labour costs. It also submitted that regular, moderate and predictable minimum wage increases are benign for inflation and employment, while promoting productivity growth.

[63] In contrast, ACCI argued that the deterioration in Australia’s productivity performance makes wage increases more difficult to fund without adding to inflationary pressures or jeopardising the viability of business operations. The deterioration has accentuated cost pressures on firms and diminished their capacity to fund an increase in wages. Similarly, ABI noted that increases in real wages that are not based on productivity gains would lead to increased inflationary pressures.

[64] The Australian Government warned that quarterly and annual rates of productivity should be interpreted with caution, as they are prone to be volatile, and cyclical effects and data are often revised. In this regard it argued that the most reliable estimates of productivity growth are based on productivity growth cycles.

Business competitiveness and viability

[65] Many employer organisations argued that the introduction of the modern award system created additional costs for employers. For example, ACCI submitted that any increase in minimum wages will coincide with the additional cost obligations as a result of the second transition to higher modern award rates and conditions. ACCI and CCIWA also argued that the implementation of modern awards is affecting key award-reliant industries in particular. CCIWA further contended that award modernisation has imposed non-productivity based additional labour costs threatening jobs, services and business viability.

[66] ACCI also cautioned that as the economic recovery gathers momentum, increasing pressure on capacity utilisation will lead to a further rise in producer price inflation. It argued that:

“The steady rise in production costs across the economy will erode margins and diminish business profitability. Subdued domestic demand also makes it difficult for most firms to pass on increases in costs in higher prices.”28

[67] In addition, ACCI noted that the high Australian dollar has reduced the competitiveness of trade-exposed sectors of the economy.

[68] The ACTU submitted that almost all of the increase in the profits share of national income has come at the expense of the wages share over the past decade. However, ACCI argued that the rise in profits’ share over the past 30 years largely reflects the increasing trend toward incorporation of previously unincorporated business entities. While conceding that, in recent years, growth in profits has accelerated while the wages share has trended downwards, ACCI attributed most of this to the growth in mining profits.

[69] The Australian Government cited firm-level analysis of business competitiveness and viability from Fair Work Australia’s Research Report 1/2011 and highlighted the following extract:

“[R]elative to firms that utilised non-award arrangements and firms that used a combination of award and non-award arrangements, firms that paid only award rates were less likely to experience increased productivity and profitability . . . Furthermore, the results revealed that firms that paid only award rates exhibited lower survival rates relative to their counterparts.” 29

But also noted that the report cautions that “the subjective nature of some of the measures used adds more uncertainty to these findings and the direction of causality remains ambiguous . . .”.30

[70] The ACTU submitted that profit growth in award-reliant industries and other industries has been of a similar magnitude over the medium-term.

Inflation and wages

[71] Many submissions acknowledged that annual inflation throughout most of 2010 had been well contained within the Reserve Bank of Australia’s (RBA) medium-term target band. Lower growth in consumer demand and the appreciation of the Australian dollar were the contributing factors most commonly referred to by the parties.

[72] The ACTU submitted that there was no observable increase in the rate of inflation following the Panel’s decision to increase minimum wages in 2010. ACCI submitted that inflation is being driven more by regulated prices, tax changes and monetary policy rather than by demand pressures, with the notable exception of the rental market. It also submitted that housing and alcohol and tobacco products were the major contributors to inflation over the year to the December quarter 2010, and noted that alcohol and tobacco products increased in price by 11.4 per cent over that period, which was significantly influenced by the recent excise tax rise on cigarettes. ACCI also submitted that housing prices have continued their positive growth in the same period, recording an increase of 5 per cent.

[73] Both the ACTU and ABI recognised in their reply submissions the impact of recent natural disasters on inflation in the March quarter 2011, particularly on the prices of key consumer staples such as fruit and vegetables.

[74] The Australian Government submitted that underlying inflation has declined steadily since the time of the last minimum wage decision to be at its lowest rate in almost a decade, at 2.2 per cent through the year to the December quarter 2010. ACCI submitted that this indicates that price pressures remain muted. ABI noted in its reply submission that the underlying inflation increase in the March quarter 2011 was a relatively high outcome but submitted that the underlying inflation level remains comfortably within the RBA’s medium-term target band.

[75] In relation to wages growth, several parties highlighted that the recovery in private sector wages has greatly influenced higher wages growth during 2010. ACCI stated that given their responsiveness to economic conditions, private sector wages provide a better gauge of the strength of the labour market and that private sector wages growth is now just below the growth rate achieved prior to the contraction in economic activity in late 2008. The Australian Government noted that public sector wages growth has been relatively stable through the economic downturn and recovery, growing 4 per cent through the year to the December quarter 2010.

[76] The ACTU submitted that growth in private sector wages in 2010 implies stronger demand conditions and an increased capacity of the economy to absorb higher minimum rates of pay. However, as already noted, ACCI submitted that the transition from public sector led growth to a durable private sector led recovery has not yet occurred.

[77] The Australian Government noted that the strongest wages growth through the year to December 2010 was in Electricity, gas, water and waste services, Professional, scientific and technical services, and Mining. The weakest wages growth over this period was experienced in Transport, postal and warehousing.

[78] Drawing on the Wage Price Index (WPI), ACCI submitted that wages growth in award-reliant industries had tended to lag slightly behind the overall pace of wages growth and contended that year-end wages growth in Retail trade, Accommodation and food services, and Health care and social assistance was below the all industries rate of 3.8 per cent. ABI supported this submission, and said that these lower growth rates are a limitation on the capacity of the economy to support significant increases in minimum and award wages. Citing a different measure of wages growth, average weekly earnings (AWE), the ACTU submitted that strong gains were recorded in some of the award-reliant industries through the year to November 2010, such as Health care and social assistance, Accommodation and food services, and Retail trade.

[79] While the ACTU submitted that average weekly earnings had increased at a solid pace over the year, ACCI argued that the rate of growth in average rates of pay had slowed significantly over that period. Although both parties submitted that average weekly ordinary time earnings (AWOTE) and average total earnings increased by 3.9 per cent and 4.3 per cent respectively through the year to November 2010, ACCI highlighted that growth in those measures was respectively 2.0 and 1.4 percentage points lower than for the same period last year. In its submission in reply, ABI also noted that growth in AWOTE had been relatively weak in contrast to 2009 and was well below the decade average of 4.8 per cent.

[80] ACCI and ABI contended that AWE is a less accurate gauge of wages growth than the WPI and argued that such measures can be distorted by changes in the composition of employment, either by industry or between full-time and part-time employment. The ACTU also noted that unlike average weekly earnings, the growth rate of the WPI is not affected by changes in the composition of employment. ACCI, ABI and CCIWA submitted that the WPI is a preferred and more useful measure of wages growth. ABI also added that public sector wage changes should be excluded from the comparison, as wage increases in the sector are not directly linked to productivity improvements and are only marginally affected by changes in economic conditions.

[81] The ACTU submitted that the AWE data and the WPI figures show there has been a solid recovery in the rate of wages growth since the labour market recovery began in mid 2009, but there is no evidence of unsustainable wages growth.

[82] In its reply submission, ACCI contended that the increase in minimum wages in 2010 contributed to a large proportion of the acceleration in wage inflation over the past year and that this does not necessarily denote the strength of the labour market. Drawing upon the explanatory notes provided by the Australian Bureau of Statistics (ABS) in their publication on the Labour Price Index, ACCI noted that the ABS had stated that the increase in minimum wage rates had an impact on the WPI in the September quarter 2010. While ACCI noted the reluctance of the ABS to draw any conclusions about the exact size of the impact, ACCI argued that the increase in the WPI in the September quarter 2010, the highest quarterly increase in the history of the series, is associated with the Annual Wage Review 2009–10 decision to increase minimum wages as there was no other probable cause.

[83] The ACTU commented that wages growth in collective agreements had remained unchanged over the March quarter 2010 to the June quarter 2010. An increase from 3.8 per cent to 4.1 per cent for private sector Average Annualised Wage Increases (AAWIs) from the March quarter 2010 to the June 2010 quarter was offset by a reduction from 4.6 per cent to 3.9 per cent in public sector AAWIs over the same period. The Australian Government referred to data on wage outcomes in collective agreements, which indicate that agreements approved in the June quarter 2010 provided for an average annual wage increase of 4.1 per cent, compared with a recent low of 3.6 per cent for the September quarter 2009.

Labour market developments

[84] Many parties, including the Australian Government, the Queensland and Victorian Governments, the ACTU, ACCI and SAWIA, submitted that labour market conditions had strengthened in the year to January 2011.

[85] The ACTU noted that the number of employed persons had not changed significantly in the three months to February 2011 and took the view that in light of the temporary economic instability associated with the natural disasters of early 2011, the labour market has been quite resilient. In its reply submission it referred to the employment data for March 2011 to reinforce its submission that despite unfavourable circumstances the labour market is performing strongly. In contrast, ACCI submitted that employment figures in recent months have been less favourable and argued that:

“Over the past three months job creation has stalled, raising doubts about the sustainability of the current rate of employment growth . . . The average monthly jobs growth during the last three months has been roughly zero compared to in excess of 30,000 throughout 2010. Job creation needs to remain at around that level if it is to keep pace with labour force growth and hold the unemployment rate steady.”31

[86] While the unemployment rate fell steadily throughout 2010, ACCI and CCIWA maintained that the reduction had been modest and unemployment remains above the low rate recorded prior to the economic downturn. Some parties noted that the reduction in hours worked by employees, in response to the economic downturn, had limited the increase in the unemployment rate. ABI commented that the Commonwealth Treasury expressed concern about the usefulness of the unemployment rate as an indicator of labour market capacity, since the reduction in hours worked is not reflected in the unemployment rate. ABI stated that Treasury found in early 2010 that the actual unemployment rate would have been 2 per cent higher if not for the reduction in average hours worked. ACCI also cautioned against sole reliance on the unemployment rate as a measure of labour market conditions. In response, the ACTU submitted that the Panel should take into account all relevant labour force indicators, including the employment-to-population ratio, which almost reached its pre-GFC peak of 63 per cent in March 2011.

[87] Citing the RBA, the ACTU argued that while hours of work reduced more than employment during the economic downturn, it was a positive development since it avoided the significant social and economic costs associated with unemployment, including detachment from the labour force, skill atrophy and reliance on government assistance. ACCI however argued that the reduction in hours worked has left a degree of residual slack in the labour market.

[88] A number of parties noted that total hours worked increased in the year to February 2011. The ACTU noted that both the underemployment and unemployment rates had fallen, with the underutilisation rate standing at 12 per cent in February 2011. ACCI submitted that while underemployment had improved over the past 12 months, it still remained above its recent cycle low. ABI submitted that the level of underemployment had not unwound like other labour market indicators and that the number of people that would like to work additional hours remains near historic high levels. AFEI submitted that although the labour market for skilled employees had been strong, a significant number of workers remained long-term unemployed or underemployed.

[89] In its submission in reply, ACCI argued that labour market conditions have improved only gradually and there are still many people in the workforce who are not employed, or are underemployed, and commented that minimum wages present a considerable barrier to the employment of low-paid workers. ACCI submitted that the Panel must remain mindful of the negative effects on the employment prospects of this group.

[90] The ARA also submitted that underemployment is still a significant issue, as full-time employees are working part-time hours, while part-time and casual staff hours have been reduced.

[91] ACOSS submitted that compared with other OECD economies, Australia has a high proportion of part-time and casual employment and there is a high incidence of low-paid work in both forms of employment. ACOSS stated that:

“This suggests that the Australian labour market operates as a dual labour market in which higher skilled employees have access to full time jobs, while lower skilled employees are to a large extent confined to part time jobs.”32

[92] The ACTU, ACCI and ACOSS all submitted that full-time positions accounted for all of the growth in new jobs created over the past year, while the number of part-time positions reduced. ACOSS commented that:

“It is possible that prolonged economic growth associated with Australia’s strong terms of trade will continue to deliver solid growth in fulltime employment at all skill levels, especially in construction associated with mining industry and housing investment.”33

[93] In its submission in reply, the ACTU noted that despite the natural disasters and international instability of early 2011, full-time employment continued to grow strongly in March 2011 and stated that this supported the assertion that the Annual Wage Review 2009–10 decision did not have a negative impact on employment.

[94] The Australian Government submitted that over the year to January 2011 employment growth has been exceptionally strong and the short-term outlook is for a continued expansion. It also submitted that a number of forward indicators suggest it may be at a somewhat slower pace than the rates recorded in late 2010, consistent with employment growth approaching trend levels. The Victorian Government cautioned that while employment should expand in the period ahead, the unemployment rate will exhibit a very gradual decline, as labour force growth is expected to be strong over the coming year. ACCI commented that strong growth in the labour force may cause the unemployment rate to trough at its current level before gradually trending higher in 2011.

[95] The Australian Government contended that the unwinding of the Government’s fiscal stimulus and the recent increases in interest rates have already begun to reduce the level of aggregate demand which will affect the labour market. It submitted that as a result, further significant reductions in the unemployment rate may be more difficult to achieve, particularly against the backdrop of robust population growth, potentially higher labour force participation and an economy approaching full-capacity.

Labour market developments by industry and occupation

[96] The ACTU and ACCI submitted that total employment in the four industries which account for the highest number of award-reliant employees (Accommodation and food services, Retail trade, Administrative and support services, and Health care and social assistance) have grown faster than employment in other industries throughout the year. However, ACCI submitted that:

“In light of difficult trading conditions and muted growth in activity in these industries these results appear to be counterintuitive. Employment figures by industry can be quite volatile and growth rates, even over the period of a year can swing markedly as a result.”34

[97] The ACTU submitted that the Annual Wage Review 2009–10 decision had no negative impact on the pace of growth in employment in industries with significant numbers of award-reliant workers and that employment growth in those industries outpaced the sum of all other industries.

[98] Citing ABS quarterly labour force data, the NRA noted that since February 2008, total retail employment grew by only 0.63 per cent, while total employment in all industries had grown by 5.71 per cent.

[99] CCIWA submitted that while overall labour market conditions had improved, there appeared to be patchiness between some sectors and noted that employment had increased in Construction, Administrative and support services, and the Retail sector, but had declined in Finance and insurance services, Wholesale trade, and Public administration and safety.

[100] The Australian Government and ACCI also commented that while most industries recovered well from the economic downturn, employment in Manufacturing, Wholesale trade, Finance and insurance, and Arts and recreation services had declined over the past year. Ai Group submitted that the strengthened exchange rate further reduced competitiveness in employment-intensive and trade-exposed sectors such as manufacturing, education, and accommodation and food services.

[101] AFEI stated that the manufacturing industry remained in a weak and vulnerable state and noted that the well-below-average employment performance of the sector reflected a major decline in output and investment, as a result of the high value of the Australian dollar and competition emanating from developing countries. AFEI argued that regardless of the underlying causes of the structural downturn in the manufacturing sector, it experienced a significant decline in employment in 2010. A wage increase in this sector at this time could only add to the problems of employers in the sector and increase the loss of jobs.

[102] AFEI also noted that the non-profit community services industry was also a major source of employment in Australia and warned that significant changes in wages and other employment provisions for many non-profit organisations would be difficult to absorb without affecting employment and service levels. AFEI stated that the unique features of the sector need to be considered when making decisions affecting organisations’ costs.

[103] The Australian Government and the ACTU submitted that employment in award-reliant occupations (sales workers, labourers, community and personal services workers, technicians and trades workers and clerical and administrative workers) increased over the year to November 2010. The ACTU also submitted that the number of workers employed in these occupations had grown faster than the number of workers employed in all other occupations during the period between November 2009 and November 2010.

[104] On the other hand, ACCI submitted that award-reliant industries have experienced disproportionately high rates of underemployment. It contended that underemployment is highest in the Accommodation and food services, and Retail trade industries, and lowest in the high skilled and capital intensive industries such as the Mining and utilities industries and the Financial services and insurance sector. ARA submitted that we should take into account differing trading conditions in Australia’s current three-speed economy, current and imminent wage bill increases for retail award-reliant businesses and underemployment levels.

[105] ACCI also suggested that underemployment falls disproportionately on low-skilled workers. Looking at occupation-level data, ACCI stated that labourers, sales workers and community and personal service worker occupations accounted for more than 60 per cent of all underemployed workers, while accounting for roughly 30 per cent of total employment. Each of these occupations has a rate of underemployment around twice the national average of 7.4 per cent.

[106] The Victorian Government and the ACTU submitted that leading indicators of employment, which include surveys of hiring intentions and measures of job advertisements and job vacancies, have remained positive. The ACTU submitted that the job vacancy rate, as measured by the ABS for the November quarter 2010, is at its equal-highest on record which provides confirmation of the labour market’s strong performance in 2010, but also signals positive expectations for the future on the part of employers.

[107] In its submission in reply, the ACTU noted that while the number of job vacancies in the February quarter 2011 fell slightly, the level was still 12 per cent above the level recorded in February 2010 and remained near its November quarter level, close to the rate recorded before the GFC.

[108] Referring to the Department of Education, Employment and Workplace Relations’ (DEEWR) Internet Vacancy Index, the ACTU noted that between January 2010 and January 2011 there was strong growth in the number of vacancies in occupations that are predominantly award-reliant but a decline in vacancies for labourers and technicians and trades workers. In its submission in reply it expanded this analysis to include data between January 2010 and March 2011. It submitted that although growth in job vacancies among occupations that are predominantly award-reliant slowed in November and December 2010, vacancies in these occupations picked up in early 2011 and increased by 8.6 per cent in March 2011, to be 21.5 per cent above levels reported in March 2010.35

[109] In its submission in reply, ABI stated that while conditions had improved marginally since mid 2009, the level of job vacancies reported in award-reliant occupations remained far weaker than levels recorded three years ago. It also stated that while the ACTU focused on growth in the DEEWR Internet Vacancy Index, another indicator produced by DEEWR, namely the Skilled Vacancy Index, had fallen by more than 11 per cent over the same period. In addition, ABI commented on weakness in the ANZ job advertisement series and stated that the current level remained well below the peak reached in March 2008. By contrast, the ACTU pointed out in its submission in reply that the ANZ job advertisement series reported an increase in vacancies by 1.3 per cent in March 2011, to be 19.2 per cent higher than the level recorded in March 2010.

[110] Ai Group, Business SA and HIA commented on skill shortages. HIA submitted that there was a shortage of skilled labour across a majority of trades in the residential sector, while Business SA also referred to skill shortages, particularly in the mining and construction sectors. Business SA submitted that skill shortages are:

“[P]ushing wages up unsustainably in some of these areas and there are concerns such increases will flow through to other parts of the economy that can least afford them. The natural disasters over summer are expected to exacerbate these shortages and wage increases.”36

[111] A number of employer groups submitted that award modernisation has led to reduced staffing levels, particularly in industries that have a high casual component. AHA submitted that any increase granted will have an extra compounding effect on casuals due to the casual loading (and penalty rates), as well as allowances generally, given that in many modern awards, including the Hospitality Industry (General) Award 2010, 37 allowances are now expressed as a percentage of the level 4 (tradesperson) rate.

Workforce participation and employment of selected groups

[112] The Australian Government, the ACTU and ACCI submitted that solid employment growth and tight labour market conditions resulted in the participation rate achieving a record high of 66 per cent in November 2010, before declining slightly to 65.7 per cent in February 2011. The Australian Government also noted that the participation rates for males and females increased over the year to January 2011. Referring to the recent improvement in the unemployment rate recorded in February 2011, ACCI argued that there has been a recent soft patch in jobs growth which would have been sufficient to reverse this decline in the unemployment rate had it not been for an offsetting fall in the participation rate over the past three months.

[113] Parties identified a number of vulnerable groups that experience disadvantage in the labour market. These groups include young people, the long-term unemployed and sole parents. The Australian Government submitted that members of these groups may have been adversely affected by the economic downturn and are more likely to experience low-paid employment.

[114] The Australian Government, ACCI and CCIWA noted that the recent economic downturn has had a disproportionate impact on youth employment, with young workers experiencing higher levels of unemployment and underemployment compared to the wider labour force. ACCI submitted that the rise in youth unemployment, from the low of 8 per cent recorded in February 2008, had been accompanied by a similar increase in the rate of youth underemployment, which stood at 12.8 per cent in the February quarter 2011 and represented almost double the national average rate of 7 per cent. ACCI commented that “[t]he combination of a high rate of youth unemployment and underemployment leads to a disturbingly high rate of labour underutilisation amongst 15 to 24 year olds”.38

[115] ACCI stated that minimum wage jobs and apprenticeships provide opportunities for young people to gain skills and work experience before transitioning to higher paid career paths and asserted that:

“Given the current elevated rate of youth unemployment, ACCI believes any increase in the minimum wage should be genuinely modest and aim to minimise the attendant loss of job opportunities for young people brought about by increasing the cost to business of employing young workers. It would also serve to limit the extent to which a wage increase would exacerbate the severe levels of underutilisation in this vulnerable section of the labour market.”39

[116] However, ACOSS argued that while young workers may be more sensitive to changes in wage rates than adult workers, there is no convincing evidence to indicate that the present minimum wage levels for young people have reduced their employment prospects relative to workers in other age groups.

[117] The Australian Government, ACCI and AFEI observed that as a result of the economic downturn, the number of long-term unemployed people (unemployed for 52 weeks or longer) had increased.

[118] The Australian Government also noted that people who become long-term unemployed may find it difficult to gain employment due to skill depreciation, the “discouraged worker” effect and marginalisation from the labour market. ACCI referred to what it called the strong rise in the number of long-term unemployed. ACOSS on the other hand referred to evidence indicating that even lowering real minimum wages would be unlikely to lead to a significant reduction in long-term unemployment and that the causes of long-term unemployment go beyond wages and involve matters such as very low skill levels and personal and social barriers to employment.

[119] The Australian Government submitted that the decline in short-term unemployment would reduce in-flows into the long-term unemployment series and predicted that if the strong pace of employment growth can be sustained over the coming months and the participation rate remains steady, further inroads into the long-term unemployed series are likely to be achieved in the year ahead.

[120] In relation to labour market conditions for sole parents, the Australian Government submitted that while employment for sole parents had increased over the year to June 2010, the unemployment rate for this group had also increased over the same period. It noted, however, that the participation rate for sole parents increased substantially, which led to the rise in unemployment. The number of children in jobless sole parent families declined by 4.6 per cent.

[121] In relation to regional labour markets, the Australian Government submitted that while labour market conditions had improved in most regions across Australia, some areas were more adversely affected and continued to struggle. It also said that the gap between the highest and lowest regional unemployment rates reached a low of 4.9 percentage points in April 2008, widened to 9.9 percentage points at the height of the global downturn and has since narrowed to 6.4 percentage points in January 2011. The Victorian Government argued that we should be aware of the particular impact of increases to award wages and the national minimum wage on regional labour markets because the impact is likely to be disproportionate in comparison with metropolitan areas.

Economic outlook

[122] Parties generally agreed that expectations for global economic growth are positive, with a modest recovery among advanced economies and more rapid expansion among emerging economies. CCIWA submitted that it will take time for growth to return to pre-GFC levels and the Victorian Government submitted that:

“The global economic recovery continued through 2010, largely driven by growth in emerging economies . . . While the IMF has forecast world growth to remain solid in 2011, much of the impetus for growth will be from emerging economies, with growth in advanced economies remaining subdued.” 40

[123] The Australian Government stated that prospects for the Australian economy also remain positive and that part of the strong medium-term outlook is due to an increase in business investment, stating that the level of planned investment in the resources industry is unprecedented in Australia’s history. The Queensland Government and ACCI agreed that the Australian economy is expected to grow above trend.

[124] Some submissions referred to the impact of the relatively high terms of trade on the economy. The Victorian Government submitted that the high terms of trade will support growth in the resource-rich states with high international commodity prices expected to promote growth in non-rural commodity exports. ACCI submitted that the adjustment caused by the rise in the terms of trade is expected to shift economic activity toward the mining industry and away from output in other trade-exposed industries. Ai Group submitted that there are clear geographic and sectoral divergences in growth prospects, while AFEI suggested that there will also be geographical and sectoral differences in relation to business investment, profitability and employment. The South Australian Government noted that high commodity prices and the appreciation of the Australian dollar have created difficulties in a number of trade exposed industries which will persist for some time.

[125] The ACTU submitted that the economic recovery is expected to generate further jobs growth. CCIWA argued that as changes to employment tend to lag changes in the economy, it will be some time before labour market conditions return to the extremely tight levels experienced prior to the downturn. ACCI submitted that:

“The composition of economic growth determines where employment in the economy will either expand or contract and is arguably more important for the job prospects of the low-paid than the forecast for overall headline growth.”41

[126] The Australian Government also submitted that if global economic conditions deteriorate, Australia would be affected, including through lower prices for our key commodity exports. However, it assessed recent disasters as unlikely to have significant implications for the medium-term. A number of parties, including the Australian, Queensland and South Australian Governments, Ai Group, ACCI and AFEI, referred to risks related to sovereign debt levels in some European countries.

[127] A number of parties referred to uncertainties in relation to the Chinese economy. The Queensland Government was concerned with a number of issues, including the exchange rate, attempts to curb inflation and a diversification of its import sources away from Australia. However, the Western Australian Government argued that growth in the economies of Australia’s major trading partners is expected to create strong domestic growth and will support rising incomes in an already tight labour market.

[128] The Queensland Government was concerned that if the Australian dollar moves higher than expected, it could worsen the fall in export earnings and further deter overseas students and tourists. However, the submission added that the Australian dollar could fall lower than anticipated if advanced economies recover faster than expected and begin to normalise monetary policy.

[129] Noting the dependence of economic activity on the fiscal stimulus during 2009 and 2010, ACCI submitted that the transition from stimulus-led growth to a durable private sector led recovery is in its early stages and remains a major uncertainty in relation to the economic outlook. ABI made a similar submission.

[130] Ai Group submitted that consumers could remain cautious despite improvements in the labour market and the higher terms of trade, due to concerns about the potential for another international economic downturn, recent rises in interest rates and higher oil prices. AFEI submitted that the increase in household savings, higher wage and on costs and the slowdown in consumer demand are contributing to business uncertainty.

[131] The South Australian Government submitted that consumer prices have been affected by the recent natural disasters, with some fruit prices already higher. However, the ACTU argued that the RBA expects the effects on inflation to be modest and temporary.42 Similarly, ACCI submitted that inflation is expected to moderate further in the near term before increasing modestly toward the end of 2011. The Queensland Government submitted that inflation risks remain significant due to the tight labour market and pick-up in aggregate demand associated with the higher terms of trade. The Western Australian Government submitted that price pressures could also come from the rebuilding in Queensland and an expected investment boom in the resources sector. The Australian Government submitted that:

“While wages growth is currently restrained, pressures on inflation and wages are likely to re-emerge over the next 12 to 18 months. Price and wage pressures will be more marked in strongly performing sectors and more muted in sectors that are not performing as strongly – such as those still recovering from the global financial crisis. Wage pressures in these sectors may start to emerge as the labour market tightens and skilled employees are bid away by the more profitable sectors as part of the ongoing structural changes occurring in the economy.”43

[132] Business SA submitted that the major risk to inflation is likely to be a widespread wages breakout if some of the significant wage increases awarded in the mining, construction and related sectors spread to other parts of the economy. ACCI’s submission expected wages growth to remain broadly steady with continued price stability.

3.2 The Economy—Data

Economic growth

[133] Annual growth in real Gross Domestic Product (GDP) has fluctuated over the past five years from a high of 5 per cent to a low of less than 1 per cent. It rose by 2.7 per cent over the year to the December quarter 2010. Quarterly growth in GDP was more volatile over 2010, with a growth rate of 1.2 per cent in the June quarter 2010 followed by a growth rate of 0.1 per cent in the September quarter 2010, marking the lowest quarterly growth figure since the December quarter 2008. The major contributors to growth over the year to the December quarter 2010 were the construction, professional, scientific and technical services industries and financial and insurance services industries, with minor contributions from the retail trade and manufacturing industries. 44

[134] Growth in the year to the December quarter 2010 has occurred notwithstanding some adverse impact of extreme weather conditions in December 2010 and the withdrawal of the fiscal stimulus from the March quarter 2010. Currently available data, to the December quarter 2010, do not reflect developments in the first half of 2011, particularly an expected significant temporary detraction from economic growth resulting from natural disasters in Australia, Japan and New Zealand. The impact of these events is considered later, in the context of the economic outlook.

Chart 3.1: Real GDP—Annual and quarterly growth rates

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2010, Catalogue No. 5206.0.]

[135] Quarterly growth in GDP across the OECD major seven countries was positive between the December quarter 2009 and the September 2010 quarter. However, in the December quarter 2010, growth in Japan and the United Kingdom was negative, at
–0.3 per cent and –0.4 per cent, respectively. The United States’ GDP grew by 0.8 per cent and Canada by 0.8 per cent in the December quarter 2010.

[136] The Australian economy performed comparatively well against a number of other developed countries over 2009 and 2010. Although GDP growth in the September quarter 2010 was relatively low compared with the OECD major seven countries, growth in the December quarter 2010 was higher than for most of these countries.

Chart 3.2: International comparisons of quarterly GDP growth

[Source: ABS, Australian Economic Indicators, May 2011, Catalogue No. 1350.0.]

Productivity

[137] Productivity, as measured by indices of GDP per capita and GDP per hour worked, for all sectors and for the market sector respectively, is displayed in Chart 3.3 below. Both GDP per hour worked measures (total and market sector) are volatile but the market sector measure remains on an upward trend. Total GDP per hour worked did not change in the December quarter 2010, after falling by 0.9 per cent in the September quarter 2010, and was 0.5 per cent lower over the year. GDP per hour worked in the market sector fell by 0.1 per cent in the December quarter 2010 and was 1 per cent higher over the year.

[138] Quarterly and annual rates should be interpreted with caution, as productivity measures, particularly in the short-term, are subject to statistical limitations and vary across the economic cycle. Other measures of labour productivity growth over long-term cycles indicate that growth has slowed since the early 1990s.

Chart 3.3: Measures of productivity—Indices

Note: Labour productivity is measured as real GDP per hour worked. GDP per hour worked in the market sector includes all industries except for public administration and safety, education and training, and health care and social assistance.

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2010, Catalogue No. 5206.0.]

Business competitiveness and viability

[139] The profit and wages shares of national income represent the returns to capital and labour, respectively, in the process of production. Between the December quarter 2000 and the September quarter 2008, the profits share of national income mostly increased, while the wages share mostly decreased (Chart 3.4). This trend reversed over the following four quarters before resuming during 2009. Both the profits and wages shares were relatively stable in the September and December quarters 2010.

Chart 3.4: Profits and wages shares of total factor income

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2010, Catalogue No. 5206.0.]

[140] Whilst part of the increase in the corporate profits share since the early 1980s reflects a greater incorporation of previously unincorporated business entities, the rise in the corporate profits share has come predominantly at the expense of the wages share. Over the decade to December 2010, the profits share increased by 4.6 percentage points, the wages share decreased by 3.8 percentage points and gross mixed income fell by 0.3 percentage points.

[141] Quarterly growth in company gross operating profits fluctuated over the decade to the December quarter 2010 but mostly remained positive. After reaching a peak in the June quarter 2008, the all industries measure of profits fell and sustained negative growth for three quarters until positive growth resumed in the September quarter 2009. Growth peaked again in the June quarter 2010 before recording negative growth in the following two quarters.

Chart 3.5: Company gross operating profits—Quarterly growth rates

Note: A break in the series occurs at the March quarter 2001 due to changes in the survey design.

[Source: ABS, Business Indicators, Australia, Dec 2010, Catalogue No. 5676.0.]

[142] As shown in Chart 3.6 below, business bankruptcy rates, which are the number of business-related bankruptcies divided by the number of self-employed and employers in the economy, have been relatively stable over the decade to 2009–10, varying between 0.3 and 0.4 per cent.

Chart 3.6: Business bankruptcy rates

Note: Business bankruptcy rate adopted from Bickerdyke, I, Lattimore, R, and Madge, A, 2000, Business Failure and Change: An Australian Perspective, Productivity Commission Staff Research Paper, Ausinfo, Canberra.
 
[Source: Insolvency and Trustee Service Australia, June 2010.]

Inflation

[143] The CPI measures changes in the prices of a “basket” of consumer goods and services weighted to the expenditure patterns of the average household. While the CPI can be affected by large temporary movements in the prices of its components, measures of underlying inflation generally exclude product categories with greater short-term price volatility. The omission of such items assists with the understanding of the general movement of prices in the economy. Widely used measures of underlying inflation include the trimmed mean and the weighted median measures, and an average of these measures is used here.

[144] Another measure of changes in the cost of living is captured in Analytical Living Cost Indices (ALCIs). ALCIs are designed to measure the average impact of changes in prices on the living cost experienced by distinct types of Australian households. Chart 3.7 below uses the ALCI of an employee household, for whom the main source of income is from wages and salaries.

[145] There are three areas of expenditure in which the CPI and the ALCI approaches provide significantly different results:

[146] The CPI, the ALCI for employee households and the underlying inflation measure experienced relatively stable annual growth in the first half of the decade to the December quarter 2010. During this period the CPI exhibited an annual average increase within the RBA’s medium-term target band of 2–3 per cent. There was significant divergence between the CPI and the ALCI for employee households from 2008 onwards. This can be partly attributed to the fact that the CPI does not take into account mortgage interest or consumer credit charges, while the ALCI for employee households does. Increases in mortgage interest charges paid by employee households since the December quarter 2009 have largely driven the higher rate of growth in the ALCI of employee households series (Chart 3.7).

[147] All three measures have fallen from their annual growth rate peaks in the September quarter 2008, however the CPI, the ALCI for employee households and underlying inflation had relatively large increases in their quarterly growth rates in the March quarter 2011. The CPI increased by 1.6 per cent, the highest quarterly increase since the June quarter 2006, to be 3.3 per cent higher over the year. The ALCI for employee households reported a larger increase of 1.7 per cent for the March quarter 2011 and 4.9 per cent over the year. Underlying inflation rose by 0.9 per cent in the March quarter 2011 to be 2.3 per cent higher over the year.

[148] The CPI and the ALCI for employee households figures for the March quarter 2011 were affected by recent natural disasters, particularly in Queensland. The ABS noted that these events caused price increases in some fruit and vegetables, particularly bananas (approximately 100 per cent in the March quarter 2011). Fruit prices increased by 14.5 per cent (to be 24.9 per cent higher over the year), while vegetable prices increased by 16 per cent in this period.

Chart 3.7: Measures of inflation

[Source: ABS, Analytical Living Cost Indexes for Selected Australian Household Types, Mar 2011, Catalogue No. 6463.0.; ABS, Consumer Price Index, Australia, Mar 2011, Catalogue No. 6401.0.]

Wages

[149] Annual growth in the WPI ranged between 2.9 per cent and 4.3 per cent since the December quarter 2000. The WPI has increased at an average annual rate of 3.7 per cent since its inception in the December quarter 1998. Over the year to the March quarter 2011 the WPI grew by 3.8 per cent.

[150] The AWOTE measure is more volatile, with the annual growth rate ranging between 2.8 per cent and 6.1 per cent since the December quarter 2000. Since the end of the June quarter 2009, the percentage change in the AWOTE series has decreased from an annual growth rate of 6 per cent to 4 per cent. Over the year to February 2011, AWOTE increased by 3.8 per cent.

Chart 3.8: Measures of nominal wage growth—Annual

[Source: ABS, Labour Price Index, Australia, Dec 2010, Catalogue No. 6345.0; ABS, Average Weekly Earnings, Australia, Nov 2010, Catalogue No. 6302.0; DEEWR, Trends in Federal Enterprise Bargaining, September 2010, http://www.deewr.gov.au/workplacerelations/pages/reports.aspx.]

[151] DEEWR enterprise bargaining data provide estimates of AAWI for collective agreements lodged in each quarter. The latest information, for the September quarter 2010, records an AAWI of 4.2 per cent, around the average of 4.1 per cent over the past decade. In the September quarter the AAWI was 4.7 per cent in the public sector and 4.1 per cent in the private sector.  45

[152] Unit labour costs take into account both the wage costs and productivity of labour. Nominal unit labour costs measure the average cost of labour per unit of output in current dollar values. Real unit labour costs adjust for inflation. A positive growth in real unit labour costs suggests that cost pressures exist as real wages rise faster than productivity. Real unit labour costs have generally declined between the December quarter 2000 and the December quarter 2010. Annual growth was negative between the December quarter 2007 and the December quarter 2010, except over the year to the September quarter 2009.

Chart 3.9: Unit labour costs—Annual growth rates

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2010, Catalogue No. 5206.0.]

Labour market

[153] Employment increased by 2.4 per cent and aggregate monthly hours worked increased by 2.3 per cent over the year to April 2011. Employment growth peaked at 3.6 per cent in November 2010, the highest annual growth rate since September 2005. Overall, employment and aggregate hours worked mostly increased throughout the 10 years to April 2011. Employment and hours worked have increased from the second half of 2009.

Chart 3.10: Employment levels

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[154] Full-time employment increased by 2.8 per cent (217 500 people) and part-time employment increased by 1.5 per cent (50 000 people) over the year to April 2011. Full-time and part-time employment levels generally increased between 2004 and 2008. There was a temporary fall in full-time employment commencing in 2008.

Chart 3.11: Full-time and part-time employment levels

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[155] Table 3.1 shows employment to population ratios for people aged 15–64 years and disaggregated for males and females. The total employment to population ratio has increased after reaching a low of 68.9 per cent in December 2001 and most recently is near its peak experienced in December 2007. As at April 2011 the employment to population ratio for people aged 15–64 years was 72.9 per cent.

Table 3.1: Employment to population ratio—Total and by gender (15–64 year olds)

    Month

Male

Female

Total

    Dec-00

76.9

61.6

69.3

    Dec-01

76.3

61.5

68.9

    Dec-02

77.1

63.0

70.0

    Dec-03

77.7

62.6

70.1

    Dec-04

77.9

63.8

70.9

    Dec-05

78.4

64.8

71.6

    Dec-06

79.4

66.0

72.7

    Dec-07

79.7

66.7

73.2

    Dec-08

79.0

66.6

72.8

    Dec-09

77.9

66.0

71.9

    Dec-10

79.3

66.5

72.9

    Apr-11

78.9

66.8

72.9

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[156] Monthly hours worked have increased each year between December 2001 and December 2010. Annual growth in monthly hours worked was highest over the year to December 2006 (3.1 per cent) and was also relatively high over the year to December 2010 (2.8 per cent).

Table 3.2: Monthly hours worked—Total and percentage change

    Year ended
    (Month)

Monthly hours worked
(‘000)

Change
%

    Dec-00

1 317 129

-

    Dec-01

1 319 125

0.2

    Dec-02

1 359 122

3.0

    Dec-03

1 385 055

1.9

    Dec-04

1 415 759

2.2

    Dec-05

1 447 772

2.3

    Dec-06

1 492 909

3.1

    Dec-07

1 524 962

2.2

    Dec-08

1 549 483

1.6

    Dec-09

1 553 282

0.2

    Dec-10

1 596 476

2.8

    Apr-11

1 601 630

2.3

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[157] In April 2011 the unemployment rate was reported at 4.9 per cent. The unemployment rate reached a low of 4 per cent in February 2008 before increasing to a peak of 5.8 per cent in May 2009. The participation rate increased between 2004 and 2007 and peaked at 66 per cent in November 2010 before decreasing to 65.6 per cent in April 2011.

Chart 3.12: Unemployment and participation rates

[Source: ABS, Labour Force, Apr 2011, Catalogue No. 6202.0.]

[158] The unemployment rates for 15–24 year olds and lone parents have historically been above the aggregate unemployment rate, and have exhibited greater volatility. Although the trends for both groups have broadly followed the aggregate unemployment rate, the unemployment rate for 15–24 year olds increased at a faster rate during the most recent economic downturn and has not fallen significantly since.

Chart 3.13: Unemployment rates—15–24 year olds and lone parents

Note: The series for lone parents began in April 2001 and is in original terms. Unemployment rates for 15–24 year olds and aggregate unemployment are seasonally adjusted.

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0; ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2011, Catalogue No. 6291.0.55.001.]

[159] The incidence of unemployment is disproportionately high among teenagers compared with the rest of the labour force. The unemployment rate for persons aged 15–19 years has ranged from 11.4 per cent to 18.7 per cent between December 2000 and April 2011. The series has risen steadily since September 2008, following a downward trend which lasted more than seven years.

Chart 3.14: Unemployment rates—Aggregate and for 15–19 year olds

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[160] The percentage of teenagers who are active in employment is shown in Table 3.3. The employment to population ratio for persons aged 15–19 years has decreased after reaching a peak in December 2007. This occurred for both males and females.

Table 3.3: Employment to population ratio—Total and percentage change by gender (15–19 year olds)

Year ended
(Month)

Male

(%)

Change over year
(pts)

Female

(%)

Change over year
(pts)

Total

(%)

Change over year
(pts)

Dec-00

48.5

-

51.2

-

49.8

-

Dec-01

46.9

–1.6

50.3

–0.9

48.6

–1.2

Dec-02

48.1

1.2

51.7

1.4

49.9

1.3

Dec-03

50.0

1.9

51.7

0.0

50.9

1.0

Dec-04

49.4

–0.6

52.0

0.2

50.7

–0.2

Dec-05

48.2

–1.2

51.4

–0.6

49.8

–0.9

Dec-06

49.9

1.7

51.9

0.5

50.9

1.1

Dec-07

50.7

0.8

53.0

1.1

51.8

0.9

Dec-08

49.0

–1.7

50.7

–2.3

49.8

–2.0

Dec-09

45.0

–3.9

50.1

–0.6

47.5

–2.3

Dec-10

45.7

0.7

48.2

–1.9

46.9

–0.6

Apr-11

44.0

–2.4

49.0

0.1

46.4

–1.2

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

[161] The industries that experienced the largest average annual employment growth over the decade to February 2011 were Mining (8.9 per cent) and Electricity, gas, water and waste services (6.8 per cent). Conversely, employment growth declined most in the Agriculture, forestry and fishing (–2.3 per cent) and Manufacturing (–0.5 per cent) industries.

[162] For industries with the largest numbers of award-reliant employees, employment growth over the decade was mixed. 46 Health care and social assistance (4.2 per cent), Administrative and support services (2.7 per cent) and Accommodation and food services (2.6 per cent) exhibited above-industry average annual growth. However, employment growth in Retail trade (2.0 per cent) and Manufacturing (–0.5 per cent) was below average over the decade.

Chart 3.15: Average annual change in employment by industry—February 2001–February 2011 (Percentage)

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003.]

[163] The average annual increase in the number of employed persons by industry over the decade to February 2011 is shown in Chart 3.16. While Mining displayed the highest growth in percentage terms, it should be noted that its growth in employment levels was around the industry average. The highest increase in employment levels occurred in Healthcare and social assistance (43 000 people); Construction (30 000 people); and Professional, scientific and technical services (28 000 people). Industries with relatively high numbers of award-reliant employees such as Accommodation and food services, Health care and social assistance and Retail trade contributed significantly to the increase in the aggregate number of persons employed.

Chart 3.16: Average annual change in employment by industry—February 2001–February 2011 (‘000s)

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003.]

[164] More recent growth in employment on an industry basis is shown below in Table 3.4. The industries that experienced the largest employment growth over the year to the February quarter 2011 were Rental, hiring and real estate services (21.4 per cent), Mining (15.6 per cent) and Electricity, gas, water and waste services (13.6 per cent). Employment declined most in Agriculture, forestry and fishing (–10.8 per cent). The four industries which account for the highest number of award-reliant employees all experienced above average employment growth in the year to February 2011.

Table 3.4: Employment growth by industry—Percentage change

 

Feb 2010–Feb 2011
%

    Rental, hiring and real estate services

21.4

    Mining

15.6

    Electricity, gas, water and waste services

13.6

    Accommodation and food services

7.8

    Health care and social assistance

7.6

    Transport, postal and warehousing

6.0

    Retail trade

4.1

    Arts and recreation services

4.0

    Administration and support services

3.3

    Information media and telecommunications

3.0

    Public administration and safety

2.7

    Professional, scientific and technical services

2.4

    Construction

1.4

    Education and training

0.9

    Manufacturing

–1.9

    Financial and insurance services

–2.4

    Wholesale trade

–2.5

    Other services

–3.8

    Agriculture, forestry and fishing

–10.8

    Total

2.8

Note: All data are in seasonally adjusted terms. Industries ranked by growth rate between February 2010 and February 2011.

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003.]

[165] Table 3.5 shows the percentage of employees within each industry which is award reliant, allocated according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) 1993 classification of industries. Across all industries, the proportion of award-reliant employees continuously declined between 2000 and 2008. This decline has been most pronounced in Government administration and defence, Health and community services; and Accommodation, cafes and restaurants.

Table 3.5: Award reliance by industry 2000–08 (ANZSIC 1993 classification)

 

2000

%

2002

%

2004

%

2006

%

2008

%

Change 2000–08
%

    All industries

23.2

20.5

20.0

19.0

16.3

–6.9

    Mining

5.9

5.9

1.9

2.4

1.0

–4.9

    Manufacturing

11.4

12.5

14.9

10.6

10.8

–0.6

    Electricity, gas and water supply

1.4

1.1

1.7

0.9

np

-

    Construction

15.0

17.1

15.2

12.0

8.4

–6.6

    Wholesale trade

12.1

11.7

14.9

12.8

11.0

–1.1

    Retail trade

34.9

34.2

31.3

28.7

29.3

–5.6

    Accommodation, cafes and restaurants

64.7

61.2

60.1

57.2

53.8

–10.9

    Transport and storage

18.4

16.4

14.4

12.4

11.8

–6.6

    Communication services

1.5

2.4

2.1

0.9

1.8

0.3

    Finance and insurance

5.6

4.9

4.5

5.1

2.5

–3.1

    Property and business services

20.7

18.1

19.7

23.2

19.0

–1.7

    Government administration and defence

15.3

6.0

0.8

0.6

0.6

–14.7

    Education

13.6

7.8

8.9

11.9

8.0

–5.6

    Health and community services

37.4

30.3

26.6

25.4

17.0

–20.4

    Cultural and recreational services

18.9

10.9

17.7

19.2

15.0

–3.9

    Personal and other services

27.1

22.2

23.5

23.4

20.3

–6.8

Notes:

The 2010 Employee Earnings and Hours publication (Catalogue No. 6306.0) does not include data disaggregated according to the ANZSIC 1993 classification.

There was no frequent estimation of award reliance prior to 2000. In 1990, around 80 per cent of all employees and 86 per cent of non-managerial employees were covered by an award. Overaward payments covered 13.4 per cent of employees in 1990, which left around 67 per cent of employees who had their pay set at the award rate. The 1995 Australian Workplace Industrial Relations Survey (AWIRS) found that 33 per cent of employees were paid the award rate; however this is a percentage of employees who were employed at workplaces with at least 20 employees.

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

[166] Table 3.6 shows the percentage of employees within each industry which is award reliant, allocated according to the ANZSIC 2006 classification of industries. For the all industries category, the proportion of employees dependent on an award declined between 2008 and 2010. Some of the more award-reliant industries, including Accommodation and food services; Administrative and support services; and Retail trade experienced a decline in the proportion of employees dependent on a modern award. However, this proportion increased for other more award-reliant industries, including for Rental, hiring and real estate services and Other services.

Table 3.6: Award reliance by industry 2008–10 (ANZSIC 2006 classification)

 

2008
%

2010
%

    All industries

16.5

15.2

    Mining

1.2

1.9

    Manufacturing

12.2

14.6

    Electricity, gas, water and waste services

5.4

3.1

    Construction

9.1

10.0

    Wholesale trade

9.0

10.9

    Retail trade

28.9

22.3

    Accommodation and food services

50.3

45.2

    Transport, postal and warehousing

8.3

8.0

    Information media and telecommunications

5.6

5.7

    Financial and insurance services

2.2

2.1

    Rental, hiring and real estate services

20.2

22.8

    Professional, scientific and technical services

5.4

4.2

    Administrative and support services

33.9

31.4

    Public administration and safety

3.6

1.9

    Education and training

8.4

5.1

    Health care and social assistance

17.2

17.1

    Arts and recreation services

14.2

15.1

    Other services

25.4

27.2

Note: The ANZSIC 1993 classification has since been replaced by the ANZSIC 2006 classification. The 2006 edition is not estimated in retrospect of years prior to 2008.

[Source: ABS, Employee Earnings and Hours, Australia, May 2010, Catalogue No. 6306.0.]

[167] Underemployment and underutilisation measures are depicted in Table 3.7. The underemployment rate captures those persons in part-time employment who desire more hours at work, as a proportion of the labour force. The underutilisation rate combines the underemployment rate and the unemployment rate. While the underemployment rate increased by 1.3 percentage points to 7.8 per cent over the year to the November quarter 2009, it has since fallen to 7 per cent in the February quarter 2011. Similarly, the underutilisation rate rose by 2.4 percentage points over the year to the November quarter 2009 to 13.4 per cent, and fell to 11.9 per cent in the February quarter 2011.

Table 3.7: Underemployment and underutilisation—By total, rate and percentage change

Year ended

(Month)

Underemployed
workers
000s

Underemployment rate
%

Change over year
pts

Underutilised
persons
000s

Underutilisation rate
%

Change over year
pts

Nov-00

648.3

6.8

-

1254.9

13.1

-

Nov-01

737.3

7.5

0.8

1414.2

14.5

1.4

Nov-02

678.3

6.8

–0.7

1297.2

13.0

–1.4

Nov-03

735.1

7.3

0.5

1309.3

13.0

0.0

Nov-04

705.4

6.9

–0.4

1241.8

12.1

–0.9

Nov-05

723.1

6.8

0.0

1249.8

11.8

–0.3

Nov-06

684.6

6.3

–0.5

1181.1

10.9

–0.9

Nov-07

687.3

6.2

–0.2

1190.9

10.7

–0.3

Nov-08

735.5

6.5

0.3

1250.6

11.0

0.3

Nov-09

905.1

7.8

1.3

1559.6

13.4

2.4

Nov-10

852.6

7.1

–0.7

1476.8

12.3

–1.1

Feb-11

833.8

7.0

–0.6

1436.5

11.9

–0.9

Note: Underemployment figures are measured quarterly.

[Source: ABS, Labour Force, Australia, Apr 2011, Catalogue No. 6202.0.]

Outlook

[168] In the 2011–12 Budget papers, Treasury noted that the world economy continues to recover from the GFC with financial conditions having improved, however the recovery remains uneven. Developments in the United States and China will largely determine the shape and durability of the global recovery, with both economies currently in different phases of the economic cycle.

[169] The global recovery faces risks from:

“[O]ngoing stresses in European sovereign debt markets, enduring weaknesses in financial sector balance sheets, fiscal consolidation pressures in many of the major advanced economies, a build-up of inflationary risks in emerging market economies and rising oil prices.” 47

[170] Against those downside risks, Treasury also noted a potential for a rapid improvement in sentiment and a subsequent surge in investment and activity more broadly, financed from idle liquidity and the continuation of the recovery in equity markets.

[171] Australia’s major trading partners are expected to grow strongly over the forecast horizon. Lower growth in 2011 reflects a moderation in the expansion of emerging Asian economies and the impact of the earthquakes in Japan. Table 3.8 summarises the forecasts.

Table 3.8: 2011–12 Budget forecasts—International GDP growth

 

2010
(outcomes)

2011
(forecasts)

2012
(forecasts)

    World

5.0

4

4

    Major trading partners

6.6

4

5

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

[Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2011–12, Canberra, 2011, p. 2-12.]

[172] International Monetary Fund (IMF) economic growth forecasts from the April 2011 World Economic Outlook are presented in Table 3.9. Australia’s real GDP growth is forecast to remain above the growth rate of the advanced economies in 2011 and 2012, but below world growth rates.

Table 3.9: IMF real GDP growth forecasts

 

2010
(outcomes)

2011
(forecasts)

2012
(forecasts)

    Australia

2.7

3.0

3.5

    Advanced economies

3.0

2.4

2.6

    World

5.0

4.4

4.5

Note: Year-on-year percentage changes shown.

[Source: IMF, World Economic Outlook, April 2011, www.imf.org/external/pubs/ft/weo/2011/01/index.htm.]

[173] Extensive flooding across eastern Australia, followed by Cyclone Yasi, together with the earthquakes in New Zealand and Japan (and the associated tsunami) disrupted economic growth in the first half of 2011, with Treasury anticipating a combined detraction of around of a percentage point from Australia’s economic growth in 2010–11 and a contraction in real GDP in the March quarter of 2011. 48 Treasury estimated that the domestic natural disasters, which disrupted coal and agricultural production, damaged infrastructure and reduced tourism and retail activity detracted of a percentage point from growth in 2010–11, with the external disasters reducing growth by of a percentage point.49 Treasury estimated that the reduced GDP associated with the domestic natural disasters has resulted largely from a $6 billion reduction in coal production, with a $1.9 billion reduction in agricultural production also contributing.50 In 2011–12, reconstruction and the resumption of economic activity are expected to add to real GDP growth. Looking beyond the temporary impact of the natural disasters, Treasury observed:

“More broadly, the Australian economy is in a strong position and the outlook is favourable, with above-trend real GDP growth forecast over the next two years.” 51

[174] In the context of strong growth in the global economy, the GDP growth in the Australian economy is forecast to grow from 2 per cent in 2010–11, to 4 per cent in 2011–12, and 3 per cent in 2012–13, underpinned by unprecedented growth in resources investment and strong growth in non-rural commodity exports. Despite relatively strong economic growth expected overall, significant differences continue to exist between sectors, with conditions in sectors not related to Mining expected to remain “challenging”. 52

[175] The Treasury’s Economic Outlook is reflected in Table 3.10:

Table 3.10: Domestic economy forecasts(a)

 

2009–10
(outcomes)
(b)

2010–11
(forecasts)

2011–12
(forecasts)

2012–13
(forecasts)

Demand and output(c)

       

Household consumption

2.1

3

3

3

Private investment

 

     

Dwellings

2.1

2

1

3

Total business investment(d)

–4.9

4

16

14

Non-dwelling constructions(d)

–8.2

8

18

17

Machinery and equipment(d)

–4.8

2

17

14

Private final demand(d)

0.7

3

6

6

Public final demand(d)

7.0

3

1

–1

Total final demand

2.1

3

4

4

Change in inventories(e)

0.3

0

0

0

Gross national expenditure

2.4

3

4

4

Exports of goods and services

5.2

4

6

5

Imports of goods and services

4.9

9

10

8

Net exports(e)

0.1

–1

–1

Real gross domestic product

2.3

2

4

3

Non-farm product

2.3

2

4

3

Farm product

1.5

13

1

–3

Nominal gross domestic product

2.3

8

6

5

Other selected economic measures

       

External accounts

       

Terms of trade

–4.4

19

–3

Current account balance (per cent of GDP)

–4.1

–2

-4

–5

Labour market

 

     

Employment (labour force survey basis)(f)

2.4

2

1

1

Unemployment rate (per cent)(g)

5.2

5

4

4

Participation rate (per cent)(g)

65.3

66

66

66

Prices and wages

 

     

Consumer Price Index(h)

3.1

3

2

3

Gross non-farm product deflator

0.2

6

2

2

Wage Price Index(f)

3.0

4

4

4

Notes:
(a) Percentage change on preceding year unless otherwise indicated.
(b) Calculated using original data unless otherwise indicated.
(c) Chain volume measures except for nominal gross domestic product which is in current prices.
(d) Excluding second-hand asset sales from the public sector to the private sector.
(e) Percentage point contribution to growth in GDP.
(f) Seasonally adjusted, through-the-year growth rate to the June quarter.
(g) Seasonally adjusted rate in the June quarter.
(h) Through-the-year growth rate to the June quarter.

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 78 and a US$ exchange rate of around 107 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$132 per barrel. The farm sector forecasts are based on average seasonal conditions in 2012–13.

[Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2011–12, Canberra, 2011, p. 2-10.]

[176] The key features of the economic outlook described by Treasury are:

[177] In May 2011, the RBA noted in its Statement on Monetary Policy that the recent floods and Cyclone Yasi have had a substantial impact on production which will likely see a decline in GDP growth in the March quarter 2011. However, it also noted that production should recover, creating stimulus for GDP growth in the June and September quarters.

[178] The RBA also noted:

[179] The main RBA forecasts are shown in Table 3.11 as follows:

Table 3.11: RBA economy forecasts

 

Dec
 2010

Jun
 2011

Dec
 2011

June
 2012

Dec
 2012

Jun
 2013

Dec
 2013

GDP growth

2.7

2

4

4

3

3

3

Non-farm GDP growth

2.1

2

4

4

3

3

3

CPI inflation

2.7

3

3

2

3

3

3

Underlying inflation

2

2

3

3

3

3

3

Note: Underlying inflation is calculated by taking the average of the RBA’s weighted median and trimmed mean measures of inflation. Percentage change over the year to the quarter shown. Technical assumptions include A$ at US$1.07, Trade Weighted Index at 78 and Tapis crude oil price at US$126 per barrel.

[Source: RBA, Statement on Monetary Policy, May 2011, Table 6.1.]

[180] Higher fuel prices, in conjunction with the recent spike in fruit and vegetable prices, is expected to drive headline inflation above the medium-term target band of 2–3 per cent over the remainder of 2011. However, the pace of CPI growth is likely to slow in 2012 as fruit and vegetable prices normalise. By 2012, underlying inflation is forecast to be above the headline rate and in the top part of the medium-term target band over much of the next couple of years. This reflects a combination of further tightening in the labour market and of the diminishing effect of the recent exchange rate appreciation.

[181] The risks identified by the RBA included:

[182] Indicators of future labour market activity include the ANZ Job Advertisement Series and the DEEWR Monthly Leading Indicator of Employment.

[183] The ANZ Job Advertisement Series found total job advertisements (including both internet and newspaper advertisements) to have increased by 1 per cent in April 2011, following a 1.3 per cent increase in March 2011. This was the twelfth consecutive monthly increase in total job advertisements. On a yearly basis, total job advertisements were 20.5 per cent higher from April 2010 to April 2011.

[184] The DEEWR Monthly Leading Indicator of Employment is compiled using a combination of economic and employment indicators such as job advertisements, employment expectations, an index of economic activity and consumer sentiment. The indicator rose for the fourth consecutive month in May 2011.

Chart 3.17: DEEWR monthly leading indicator of employment

[Source: Department of Education, Employment and Workplace Relations, DEEWR Monthly Leading Indicator of Employment, May 2011, http://www.deewr.gov.au/Employment/LMI/LeadIndEmploy/Pages/LatestRelease.aspx.]

Conclusion

[185] GDP growth was below trend in the year to December 2010 in the transition from public to private sources of growth, and the floods in eastern states and Cyclone Yasi have detracted significantly from growth in the March quarter 2011. Nonetheless real GDP rose by 2.7 per cent over the year to the December quarter 2010 and is forecast to grow by 2 per cent in the financial year 2010–11, before accelerating in the second half of 2011 and into 2012, with above-trend real GDP growth forecast in 2011–12 and 2012–13.

[186] The positive growth outlook is underpinned by unprecedented growth in resources investment and strong growth in non-rural commodity exports, creating a very positive outlook for mining and related industries. Notwithstanding the strong outlook for aggregate economic growth, other sectors face more challenging conditions as a result of tighter macroeconomic settings, consumer caution and the strong Australian dollar.

[187] Household consumption growth has moderated since the onset of the GFC, with consumers remaining cautious and reducing household debt levels. This follows a period prior to the mid 2000s where growth in household consumption had exceeded growth in household incomes, supported by strong growth in both housing market and share market returns. Nonetheless, household consumption growth is expected to increase steadily over the next two years, supported by strengthened household finances and generally favourable economic conditions.

[188] Growth over the past year has supported strong labour market outcomes, reflected in an increase in total employment of 2.9 per cent and a 3.9 per cent increase in aggregate monthly hours worked over the year to March 2011, despite the negative economic impact of flooding and Cyclone Yasi in December 2010 to February 2011. As is suggested by the growth in aggregate hours worked, the employment growth over the past year has predominantly taken the form of full-time jobs. As a result, the unemployment rate has fallen over the past year to 4.9 per cent in April 2011, down from the May 2009 peak of 5.8 per cent, although it remains above the pre-GFC February 2008 level of 4 per cent. The participation rate remains at an historically high level of 65.8 per cent. The outlook is for continuing employment growth of 1 per cent per year in the next two financial years and a further gradual reduction in the unemployment rate, notwithstanding the participation rate remaining at current high levels.

[189] Underlying inflation has been moderate over the year to the March quarter 2011, although headline inflation has increased markedly in the first half of 2011 due to the impact of the floods and Cyclone Yasi on fruit and vegetable prices and the recent rise in oil prices. Underlying inflation is currently at around 10-year lows, but is expected to rise over the course of the next two years. Wages growth increased during 2010 from relatively suppressed levels following the GFC, as private sector wages growth recovered to more normal levels. Wages growth has returned to around trend levels and is expected to increase gradually as the labour market tightens.

[190] Overall, Australia’s immediate economic outlook is positive, with recent good economic growth expected to strengthen further to above trend levels, driven by private sector activity focused on the resources sector, with continued improvement in labour market outcomes. We are conscious, however, that those sectors not benefitting directly or indirectly from the resources boom are likely to face more challenging conditions than suggested by aggregate economic conditions.

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

[191] The minimum wages objective and the modern awards objective both require Fair Work Australia to take into account relative living standards and the needs of the low paid.

Definitions of low paid

[192] In its Annual Wage Review 2009–10 decision, the Panel concluded that:

“There is no consensus among the parties and other commentators with respect to a definition of the low paid. Because there is a continuous distribution of wages, there is no wage threshold just below which people are clearly low paid and just above which people are clearly not low paid. Rather, the lower the wage, the more “low paid” is the employee. People earning above or near median earnings are clearly not low paid in an absolute sense. In considering relative living standards and the needs of the low paid, we have focussed mainly on those receiving less than two-thirds of median adult ordinary-time earnings . . . We have also had regard in particular to those paid at the C10 rate, in recognition of past practice, on the C14 rate, which is equivalent to the minimum wage, and on those whose full-time equivalent wages put them in the bottom quintile of the wage distribution. Employees on award wages that are above these rates can be considered to be low paid in a different sense.”54

[193] Definitions of low pay that were mentioned in this year’s submissions included employees earning:

[194] Fair Work Australia’s Research Report 2/2011, which discusses approaches to analysing the circumstances of low-paid employees, notes the lack of consensus about defining the low paid in Australia. This report provides an extensive list of the various definitions that have been used in recent Australian research.55

[195] The report notes data limitations for analysis that defines the low paid as award reliant:

“[T]here is no data set available that both adequately identifies the jurisdictional coverage of employees and provides sufficient information about their living arrangements and household circumstances to enable an analysis of their living standards. This means that any research that seeks to describe and analyse the living standards of low-paid employees must necessarily focus on a population of low-paid employees as a whole (however defined), only some of whom will be affected by the decisions of Fair Work Australia.”56

Real and relative wages

[196] In relation to the real value of award rates of pay, ACCER submitted that:

“The real wages of many safety net workers have fallen over the decade, with the greatest falls being at the higher end of the low paid spectrum; for example, workers now on a safety net wage of more than $698.38 per week have had a real wage cut since 2000 [to December 2010].”57

[197] Using the distributions of earnings for award-reliant adult permanent employees provided in Fair Work Australia’s Research Report 4/2010, ACCER estimated that the median award-reliant (adult permanent) worker received increases of around 29.5 per cent in total over the decade to December 2010, less than the CPI increase of 32.5 per cent.

[198] While noting that the real value of the higher award rates had fallen over recent years, the ACTU particularly concentrated on changes in the real values of the C10 and C14 rates of pay. It submitted that the real value of the C14 rate, where the nominal value is deflated by the CPI, increased by 7.52 per cent from September 2000 to September 2010—the quarter in which the Annual Wage Review 2009–10 decision took effect—while the real value of the C10 rate increased by 1.84 per cent. The data they referred to also show that the real value of both these rates increased over the year to September 2010.

[199] The ACTU forecast the real values of these rates as of June 2011 using the Commonwealth Government’s Mid-Year Fiscal and Economic Outlook’s forecast of 2 per cent CPI inflation for the 2010–11 financial year. Based upon these estimations, it predicted that the real value of the C10 rate will be lower in June 2011 than it was in September 2000, while the real value of the C14 rate will only be around 5.3 per cent higher than its September 2000 level.

[200] The ACTU submitted that the decline in the purchasing power of award wages is even more evident if the employee ALCI is used as a measure of changes in living costs rather than the CPI. It submitted that when the ALCI for employee households is used as the deflator then the real value of the C14 rate increased by only 4.4 per cent over the decade to September 2010, while the real value of the C10 rate declined by 1.1 per cent.

[201] The ACTU also emphasised some relatively large price increases for particular components of the CPI over 2010, including housing (including rents), health, education, electricity, vegetables, water and sewerage, and tobacco.

[202] The ACTU drew attention to the long-term declines in higher award rates of pay relative to AWOTE. The data produced showed, for example, that the ratio of the C14 rate of pay to AWOTE fell by 12.5 percentage points from August 1991 to November 2010 (from 57.3 per cent of AWOTE to 44.8 per cent), but the ratio of the C2(b) rate of pay to AWOTE fell by 47.1 percentage points over the same period (from 117.6 per cent of AWOTE to 70.5 per cent). Based on these declining wage relativities, the ACTU claimed the decline in relative living standards for award-reliant workers employed at higher classification levels has been particularly acute.

[203] The Australian Government provided a table from the OECD that shows that in 2008 Australia’s minimum wage, as a proportion of full-time adult median earnings (the “minimum wage bite”), was high relative to most OECD countries at 52.2. It estimated that by 2009 this had risen to 54.4. The ACTU submitted that Australia’s minimum wage bite had fallen between 2000 and 2009, while over the same period it had risen for 17 of the 22 OECD countries for which comparisons were available. Recently released data indicate that the minimum wage bite has not altered substantially in the last 12 months.

[204] ACCI and CCIWA maintained their position that award rates of pay, in their function as a safety net, should not match market rates of pay.

Individual wages and household disposable income

[205] As indicated in the Annual Wage Review 2009–10 decision, wages do not by themselves directly determine the relative living standards of the majority of individual wage earners who live in households with others.58 The Panel expressed the view that minimum wages and the tax/transfer system are both relevant to the maintenance of an effective safety net for the low paid.59 The Australian Government shared this view, stating that for individuals that remain in low paid employment for lengthy periods, where they reside in low income households, minimum wage increases can (alongside the tax/transfer system) help to support their living standards. Its submission contained the results from DEEWR’s modelling of the percentage changes in real disposable income for a range of household types over an income range of $0 to $200 000 from 2006 to 2011. The modelling illustrates that, of the household types examined, households at the lower end of the distribution with private income (including those around the national minimum wage) have, on average, benefited reasonably well in relative terms, particularly compared with middle income households. The Australian Government attributed these changes to a combination of the real increases in the national minimum wage, the Low Income Tax Offset and reduced taper rates on some transfer payments over the last five years.

[206] The ACTU cited research to support the view that higher minimum wages reduce both wage inequality and income inequality.60 However, ACCI cited a range of Australian studies to support the view that higher minimum wages reduce hourly wage inequality but not household income inequality, due to the dispersion of minimum wage earners throughout the household income distribution and a possible decline in employment opportunities resulting from the higher wages.61

[207] The Australian Government submitted that a range of household types with private income equal to the national minimum wage experienced an increase in real disposable income over the year from January 2010 to January 2011. These changes were shown in table form and are reproduced in Table 4.1. Of the selected household types, DEEWR’s modelling shows that a single person with no dependents, and a double income couple with no children, received the highest increase in real disposable income over this period (both 2.3 per cent), while a single income couple with the partner receiving the parenting payment received the lowest increase (0.7 per cent). As the Australian Government’s submission showed, these increases continued the upward trend in real disposable income for these household types since January 2006.

Table 4.1: Changes in real disposable income by selected household types—1 January 2010 to 1 January 2011

    Household type

Change
%

    Single person (age 21–54)

2.3

    Single income couple (ages 21–54). Income support is Newstart allowance

1.0

    Two income couple (both NMW)

2.3

    Two income couple (both 50% of NMW). Income support is Newstart allowance

1.1

    Single parent (age 21–54; child age 2). Income support is parenting payment

1.9

    Single income couple (ages 21–54; child age 2). Income support is parenting payment

0.7

Note: The households are all assumed to have private incomes equal to the national minimum wage.

[Source: Australian Government submission, p. 66 at para. 27; DEEWR modelling.]

Benchmarks and measurements

[208] In its Annual Wage Review 2009–10 decision, the Panel concluded that:

“There was support among a number of parties for the view . . . that, for the low paid, the ‘. . . level of income needs to be of a standard to enable all workers to live in dignity’. While the concept of living with dignity has a long provenance in Australian wage fixing, it is difficult to translate it into a specific monetary amount. We were presented with little evidence as to what this amount should be.”62

[209] The ACTU submitted that the budget standards developed by the Social Policy Research Centre in the mid 1990s are of diminishing relevance. However, it still argued that, in the absence of standards more properly updated to reflect changes in the cost of living and community norms, standards updated in line with CPI do provide some indication of the adequacy of minimum wages. In its submission, the ACTU updated (to December 2010) the Modest but Adequate budget standard, and showed that using this method, the disposable income of a single adult working full-time and renting privately would be below the Modest but Adequate budget standard for an employee earning the C14 (94 per cent of the Modest but Adequate budget) or C13 rate (96 per cent). However, the ACTU also noted that updating the standards using the CPI is likely to underestimate the level of income required to meet a particular standard given that the average level of consumption increases over time.

[210] ACCER updated (to December 2010) both the Modest but Adequate and the Low Cost budget standards using CPI increases for a range of household types. It emphasised that the disposable income of a family of two adults and two children, with one adult earning the national minimum wage (and housing costs reduced by rental assistance), would be below its updated Low Cost budget.

[211] The ACTU compared September 2010 disposable income for a range of household types reliant on the C14 and C10 classification rates relative to poverty lines representing 60 per cent of median household equivalised disposable income (for that household type). Few of the household types selected had disposable income significantly above the relevant poverty line, while some had disposable income that was below the relevant poverty line. ACCER, in its submission in reply, noted that the incomes shown in the ACTU submission for one-earner couples would have been substantially lower if the assumption that the non-employed adult receives Newstart Allowance was omitted. The ACTU also submitted that these poverty lines should not be seen as a “target” for minimum wages fixing. It also submitted that “the fact that minimum wage workers’ households generally have incomes above the relevant poverty line should not necessarily be taken as an indication that their wages are adequate to meet their needs”.

[212] The Australian Government submitted that the Henderson Poverty Line and budget standards are subjective and do not reflect individuals’ circumstances well and it preferred to rely on financial stress indicators. It showed that, according to data from the 2009 Household, Income and Labour Dynamics in Australia (HILDA) survey, low-paid employees were more likely than other employees to report financial stress on all seven indicators (presumably using the definition of low pay—cited elsewhere in its submission—as being wages below two-thirds of the full-time median wage). However, it also noted the finding cited in one of the research reports for this review that “many such households appear to suffer little financial stress”.63

[213] ACOSS again submitted that it is unlikely that there will be consensus on a single benchmark and proposed that a set of basic income benchmarks should be used as a guide in assessing the adequacy of minimum wages. It called on the Panel to commission research and undertake consultations to develop a robust set of indicators of a minimum adequate living standard for low-paid workers and their families. It welcomed the publication of Fair Work Australia’s Research Report 2/2011 on approaches to defining the relative living standards and needs of low-paid employees as a positive first step. That report notes that “[b]ecause many aspects of living standards cannot be directly observed, research typically relies on one or more indicators of living standards”.64 The most common of these in Australian research is income, although recent research has also focused on expenditure, assets or wealth, financial stress and/or material deprivation.

[214] ACCER argued that further and better information is needed on the needs of low-paid workers and their families if the Panel is to be sufficiently informed to carry out its obligations to take into account the needs of the low paid when setting safety net wages. It proposed the establishment of a broad-ranging inquiry into the financial needs of low-paid workers to provide data and commission research for use in annual wage reviews and to consider the formulation of various benchmarks for the same purpose.

Conclusions

[215] There was no consensus with respect to a definition of the low paid, although there was general support for the relevance of award rates and two-thirds of AWOTE as relevant benchmarks. Consistent with our decision last year, we consider the low paid to be those on award rates, particularly those paid at equal to or less than the C10 rate. We note that two-thirds of AWOTE currently lies between the C3 and C2(a) award rates. In understanding the relative living standards and needs of the low paid, we require a definition that situates the low-paid worker in his or her family. There is also a practical requirement that suitable data be available to identify the standard of living of low-paid workers, or changes therein.

[216] We accept the view that a definition of low pay as less than or equal to 120 per cent of the national minimum wage is too restrictive as a sole benchmark, in that it excludes a high proportion of workers who are reliant on awards. At present, that equates to the C9 award rate, and we find it more helpful to think in terms of lower award classifications, rather than a percentage above the national minimum wage.

[217] In considering the needs of the low paid, we therefore pay attention to the relative living standards and needs of employees paid at award rates, particularly at the lower classification levels. We are of the view that, since two-thirds of AWOTE currently embraces most award rates, its inclusion as a reference point does not add substantial extra information, although in practice it can be a useful proxy for award rates. Should this relationship change in the future, we would reconsider our position.

[218] The real value of the C14 rate of pay, when the CPI is used as the deflator, increased by approximately 5 per cent over the decade to the end of 2010; the real value of the C10 rate of pay was virtually unchanged; and both rates have increased in the year to September 2010. At the classification levels above C10 real wage rates have declined over the decade, with the decline being greatest at the higher levels. For example, the real value of the rate for the C1(b) classification level has declined by around 13 per cent. These changes are illustrated, for selected award levels, in Chart 4.1 below. When the ALCI for employee households is used as the deflator, the real value of the C10 wage rate has declined by around 1 per cent in the decade. In the 12 months to March 2011 the CPI increased by 3.3 per cent. We note, however, that the RBA’s preferred measures of consumer prices indicate increases of 2.2 per cent and 2.3 per cent after making allowance for temporary effects from the Queensland floods and the tobacco excise. In the same period the ALCI for employee households increased by 4.1 per cent.

Chart 4.1: Real value of selected minimum wage rates—December quarter 2000–March quarter 2011

Note: Minimum wage rates are measured at end of quarter, except for the September quarters since 2007, which measures the minimum wage rates as of 1 October in each year.

[Source: ABS, Consumer Price Index, Australia, Mar 2011, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010.]

[219] We accept that the falls in the real value of higher award rates of pay were in part the result of deliberate decisions to allocate the greater share of wage rises to those in greatest need, i.e. those on the lower award rates. As such, lower award rates increased more than they otherwise would have, and it is not appropriate to view the fall in the real value of higher award rates independently of this fact.

[220] In almost all cases award rates of pay have declined over the past decade relative to measures of average earnings, with the declines being larger for higher award rates of pay. The C14 rate has grown at about the same rate as WPI. Nonetheless the most recent international comparisons (for 2008) show that Australia’s minimum wage bite remains relatively high among OECD countries. In the 12 months to February 2011 AWOTE increased by 3.8 per cent and AWE by 4.1 per cent. In the 12 months to the March quarter 2011 WPI increased by 3.8 per cent.

[221] A broader measure of living standards is household income. DEEWR’s modelling of changes in real disposable income for a range of household types that earn the national minimum wage shows that the 2009–10 adjustment contributed to raising the real disposable income for these households in 2010. It also shows that, over the past five years, households at the lower end of the distribution have benefited in relative terms, due to a combination of wage increases and tax/transfer changes.

[222] Table 4.2 below, from the Fair Work Australia Research Report 2/2011, provides recent evidence of the disposable incomes of two different household types (single person and couple with two children), comparing earnings of AWOTE, and various award levels.

Table 4.2: Weekly disposable incomes of hypothetical households at various award wages, relative to disposable AWOTE income—August 2010

Wage indicator/ award classification

Wage rate

Disposable income (DI)

Single person

Couple, two children

$ per week

% of AWOTE

$
per week

% of DI @ AWOTE

$
per week

% of DI @ AWOTE

AWOTE

1257.20

100.0

986.90

100.0

1218.40

100.0

C2(b)

897.50

71.4

754.90

76.5

1058.00

86.8

C4

797.20

63.4

690.20

69.9

1002.50

82.3

C10

663.60

52.8

596.80

60.5

963.60

79.1

C14 (NMW)

569.90

45.3

522.00

52.9

941.10

77.2

Notes: Households contain one full-time employee earning the relevant wage. Children are aged 6–12. Household pays sufficient private rent to qualify for maximum Rent Assistance where applicable. Disposable incomes are rounded to the nearest 10 cents.

[Source: Fair Work Australia, Relative living standards and needs of low-paid employees: definition and measurement, Research Report 2/2011, January 2011, p. 69 at Table 8.1.]

[223] The table shows that award rates at C4 or below were less than two-thirds of AWOTE (one of the standard measures of low pay). It also shows the impact of government taxes and payments to households in increasing the disposable incomes of households with earnings equal to the nominated awards, relative to households that received AWOTE. For example, a single person paid at the C10 rate earns 53 per cent of AWOTE but has a disposable income equal to 61 per cent of that of the AWOTE recipient. The effect is larger for couples with two children, the comparable figure for a C10 earning couple being 79 per cent.

[224] Chart 4.2 below, derived from Figure 8.1 of the Report, shows changes in the ratio of the disposable income of a single person and a couple household reliant on a C14 wage, as a proportion of the equivalent disposable income with a wage equal to AWOTE. Over the period 2002 to 2010 there has been a small fall in the relative position of both family types that are reliant on the C14 wage.

Chart 4.2: Disposable income when receiving C14 wage relative to disposable income when receiving AWOTE—Single person household and couple plus two children

Notes: AWOTE for full-time adults, seasonally adjusted = $871.10 pw in August 2002, $919.10 in August 2003, $950.50 in August 2004, $1007.40 in August 2005, $1035.10 in August 2006, $1091.20 in August 2007, $1142.70 in August 2008, $1202.50 in August 2009 and $1257.20 in August 2010. Tax/transfer parameters as at July in each year. Children aged 6–12. Households pay sufficient private rent to receive maximum rent assistance, where applicable. Disposable income includes all available income transfers.

[Source: Fair Work Australia, Relative living standards and needs of low-paid employees: definition and measurement, Research Report 2/2011, January 2011, p. 70 at Figure 8.1.]

[225] Evidence was presented that the incomes of some household types with award-reliant workers are falling behind some of the commonly used indices of poverty. However, the evidence also indicates that a minority of these workers are living in households with “low living standards”, particularly if these standards are indicated by more than income alone. Focusing on low wage households, we note the evidence on degrees of financial stress experienced by low wage households presented in the Australian Government’s submission. The degree of financial stress provides a useful indication of the adequacy of wages to meet the needs of the low paid. There is no benchmark “acceptable” level of financial stress for low wage households, but changes in these levels provide useful information about households reliant on wages at or around award levels.

[226] We have been asked to express a view about the utility of the Henderson Poverty Line as part of the range of indicators of relative standards of living. Our view at present is that this measure is not helpful to our task. Its origins in the 1960s, the inconsistency between its original construction and the way it is updated, and its focus on poverty rather than the needs of the low paid reduce its value as a tool for wage-setting.

[227] While there is a reasonable level of agreement on the relevant indicators of relative wages and living standards, there is no consensus on how to measure and assess the needs of the low paid. Some parties have called for a program of research and consultations to inform the Panel in this regard. We would welcome the considered views of interested parties on what were the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing. The Fair Work Australia Research Report 2/2011 provides a useful starting point. One or more members of the Panel will consult with any interested parties and provide a report under s.290 of the Fair Work Act.

[228] Ascertainment of the needs of the low paid by reference to benchmarks is difficult because of the range of personal and household circumstances which can affect the income of an individual employee. Income includes more than earned wages and, of course, the Panel is able to deal only with minimum wages. The extent to which minimum wages, and in particular the minimum wage, should be set by reference to the needs of a wage earner’s dependents will continue to be a matter for debate because of the significant contribution that taxation and government transfer payments make to the income of low-wage earners with dependents. In this chapter we have focused on both relative living standards and the needs of the low paid. It is important to point out that those two considerations, taken together, are required to be taken into account along with a number of other matters specified in the modern awards objective and the minimum wages objective. No one matter or combination of matters should take precedence, although the weight given to them may vary depending on the circumstances at the time.

5. Promoting Social Inclusion through Increased Workforce Participation

[229] As part of the minimum wages objective, Fair Work Australia must establish and maintain a safety net of fair minimum wages, taking into account promoting social inclusion through increased workforce participation.65 In addition, as part of the modern awards objective, Fair Work Australia 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 the need to promote social inclusion through increased workforce participation.66

Social inclusion and workforce participation

[230] In the Annual Wage Review 2009–10 decision the Panel stated:

“The requirement to consider the need to promote social inclusion . . . itself involves the competing considerations of the availability of employment, the quality of employment and the incentive to seek employment.”67

“We accept the position advanced by the Australian Social Inclusion Board and others that social inclusion encompasses both the obtaining of employment and the pay and conditions attaching to the job concerned . . .”68

[231] A number of parties, including the Australian Government, the ACTU and ACCER, expressed support for this interpretation of “social inclusion” as encompassing wages and conditions.69 The Australian Government submitted that:

“Minimum wages can promote social inclusion by providing a safety net . . . Together with the National Employment Standards (which comprise ten minimum standards of employment for employees), minimum wages, therefore, can provide . . . vulnerable groups with a much needed safety net, where paid employment is consistent with community standards and where workers cannot be exploited.”70

[232] The ACTU’s submission indicated that aspects of work beyond pay and conditions are also important for achieving social inclusion. As evidence of how not all jobs facilitate social inclusion, the submission cited a recent longitudinal study by Leach et al. involving some 4300 people.71 The study found poor quality jobs (characterised by insecurity, low marketability and job strain) were associated with poor physical and mental health outcomes.

[233] The Australian Social Inclusion Board reiterated its position that social inclusion involves both gaining employment and the pay and conditions of the given job. It said:

“[L]ow income is a driver of social exclusion. It remains the Board’s view that promoting social inclusion involves enhancing the resources available to low paid Australians by ensuring they receive fair wages that provide for a decent standard of living. Increasing employment at any cost would not enhance low-paid employees’ opportunities and capabilities to learn, engage and have a voice. Failure to award a reasonable increase in minimum wages would erode, not promote, social inclusion.”72

[234] ACCI, along with CCIWA, maintained the interpretation they advanced last year that the promotion of social inclusion through workforce participation should be confined to the creation of job opportunities.

Work incentives and labour supply

[235] In relation to the financial incentives that exist for individuals to move into minimum wage jobs, the Panel concluded in the Annual Wage Review 2009–10 decision that:

“We accept that while incentives to work full-time are significant, where part-time work is concerned the position is less clear and the incentives may be less.”73

[236] Submissions to the Annual Wage Review 2010–11 did not directly challenge this conclusion. The Australian Government and the ACTU submissions provided modelling that showed improved household disposable income for all hypothetical households modelled as a result of a member taking up a full-time job paid at the national minimum wage.

[237] The ACTU cited research not previously referred to concerning the responsiveness of the labour supply of minimum wage workers to increases in wages, which they submitted suggests that higher wages will induce increased workforce participation. 74 These results are set out in Table 5.1:

Table 5.1: Estimates of elasticity of labour supply of minimum wage workers

 

Partnered
 men

Partnered
 women

Single
 men

Single
 women

Single
 parents

Wage elasticity

0.196

0.559

0.261

0.268

0.665

[Source: Buddelmeyer and Kalb.]

[238] The results imply, among other things, that single parents and partnered women are the most responsive to an increase in minimum wages, but the response of other groups is still positive.

[239] ACOSS submitted that minimum wages have an effect on paid work incentives. Incentives will become increasingly important as the population ages. High effective marginal tax rates75 can be a disincentive to the unemployed to take up employment, particularly part-time employment. As high effective marginal tax rates are based on family income rather than personal income they can be a disincentive for secondary earners in low and middle income households. ACOSS submitted, however, that in recent years real increases in minimum wages, together with the easing of income tests and income tax reductions, have significantly improved incentives.

[240] Several submissions (including those from the Australian Social Inclusion Board, the ACTU and ACOSS) asserted the importance of maintaining at the least the real value of the national minimum wage in order to preserve current financial incentives. It was further submitted that increases in minimum wages would need to keep pace with increases in average earnings to maintain their relativity with other payments indexed to wage movements.

[241] Ai Group reiterated the position that, given persistently high labour force underutilisation rates, the lack of participation in the workforce is not due to the unwillingness of people to work at current wage rates. It noted an average underutilisation rate of 11 per cent for men and 15 per cent for women since 1978.76 ACCI, AFEI and CCIWA also submitted that the actual rates of employment and workforce participation depend principally on labour demand.

Minimum wages, employment and labour demand

[242] In its Annual Wage Review 2009–10 decision the Panel reviewed the literature on minimum wages and employment and stated:

“Our attention was drawn to extensive literature and studies concerning the relationship between minimum wage rises and employment levels . . . The relevance of some of the studies is limited insofar as they are directed to the effects of increasing a single minimum wage in circumstances which are quite different to those which characterise the Australian industrial relations systems, including the range of minimum rates at various levels throughout the award system. Although a matter of continuing controversy, many academic studies found that increases in minimum wages have a negative relationship with employment, but there is no consensus about the strength of the relationship.”77

[243] ACCI presented findings from a range of mostly Australian studies published between 1998 and 2009 to support a finding that the relationship is a negative one, submitting:

“[A] minimum wage increase will cause disemployment effects, especially amongst low skilled workers, with the magnitude of disemployment depending on the wage increase and the wage elasticity of labour demand. It is also possible that measured disemployment effects are significantly reduced by the capacity of employers to respond to wage increases by reducing non-pecuniary compensation, such as health insurance, training, scheduling flexibility, employee discounts on goods and services etc.; or reducing work hours without reducing employment.”78

[244] In reply, the ACTU submitted that all of the studies referred to in the ACCI submission have been addressed and critiqued in previous annual wage reviews. In addition the ACTU relied on a new empirical work on the minimum wage–employment relationship in the United States published in late 2010. 79 The authors state in their conclusion:

“[W]e find strong earnings effects and no employment effects of minimum wage increases.” 80

[245] The ACTU also noted a new study that examines the impact of the national minimum wage in the United Kingdom from 1997 to 2007.81 The authors found that while the average employment effect was “broadly neutral”, there were small but statistically significant positive employment effects from 2003.

[246] In response to the ACTU’s submission that the 2009–10 decision had no negative effect on employment, ACCI submitted that such an assessment can only be made relative to a situation where award rates remain unchanged and this can only be achieved through economic modelling. In the absence of any modelling it is impossible therefore to sustain the position that the $26 per week increase in the national minimum wage had no impact on employment.

[247] The Australian Government submitted that the strength and resilience of the Australian economy and labour market over the last year has been encouraging and that:

“In the Australian context, in the years preceding the recent economic downturn, moderate increases in minimum wages were accompanied by strong employment growth. This suggests that in periods of strength the demand for labour is such that any impact of minimum wage increases on employment levels is tempered, if not, in fact, neutralised.”82

[248] ACOSS suggested that for many unemployed people there are significant barriers to employment which are not related to the level of minimum wages or labour demand. It submitted that even a large reduction in relative minimum wages would not substantially reduce unemployment and reliance on income support. ACOSS relied on the results of the Job Services Australia program for 2009–10. Outcomes for finding a full-time job ranged from 25 per cent for the least disadvantaged stream of participants (of four streams) and 6 per cent for the most disadvantaged even though there was a 50 per cent wage subsidy.

Labour market transitions

[249] In the Annual Wage Review 2009–10 decision the Panel stated:

“[M]any minimum wage jobs are important entry points into paid work. On the other hand, on the available evidence, around 25 per cent of those in low paid jobs remain low paid for some years.

We agree with those who have submitted that we must be careful not to inhibit the growth of entry level jobs for vulnerable groups such as the young and low skilled workers . . .”83

[250] The Australian Government provided new analysis of HILDA data to illustrate that low-paid jobs are an important entry/re-entry point into the labour market. Across the nine waves of data (2001 to 2009) on average around half of those unemployed, and nearly one-fifth of those not in the labour force, found part-time or full-time work within a year. The majority earn below two-thirds of the full-time median weekly wage (65 per cent of those previously unemployed and 75 per cent of those previously not in the labour force).

[251] The Australian Government submitted that after two years, around half of low-paid workers continued to be low paid;84 after four years the corresponding figure was 35 per cent. It noted that earlier research using the first four waves of HILDA data found a faster transition to higher pay.85

[252] While not focusing on labour market transitions into and from low-wage jobs, the ACTU reviewed ABS data on gross labour force flows. These data reflect the proportion of people who change from one labour force status (employed, unemployed, not in the labour force) to another. Analysing trends in these data from December 2007 to 2010, the ACTU submitted that the 2009–10 decision did not disturb the ongoing improvement in the labour market that began in mid 2009.86 The proportion of employees becoming unemployed each month has been declining since mid 2009, the proportion leaving the labour force has been falling from mid 2010 and the proportion of unemployed persons gaining employment each month has been rising since late 2009.

Employer survey material

[253] A number of employer bodies relied on survey material to support the contention that the minimum wages adjustments resulting from the Annual Wage Review 2009–10 decision negatively affected employment and, in some cases, hiring intentions. Information about the surveys is given in Table 5.2 below. In each case, those surveyed were members of the relevant employer body and, in the case of ACCI, the survey was conducted through its constituent bodies.

Table 5.2: Employer surveys

Survey title

Type of employers

Sample size

ACCI National Employer Survey

National

923

CCIQ Annual Wage Survey, March 2011

State (Queensland)

Greater than 800

AHA Member survey: 2011 Annual Wage Review

Hotel and hospitality industry

633

MGA Annual Wage Review 2010–11: Effects on your business

Independent supermarkets

Not known

VACC member survey on the effect of the 2010 federal minimum wage increase

Retail automotive industry (Victoria and Tasmania)

199

Note: Survey response rates for the ACCI National Employer Survey varied across questions. For example, only about half of respondents answered the questions about hiring intentions and changes in hours.

[254] The ACCI survey results suggest that the employment effects of last year’s decision included reductions in hours and alterations to the mix of full-time, less than full-time and junior employees. ACCI submitted that:

“[W]hilst the majority of employers reported that the total number of employment hours offered to employees did not change (53.4%), the second most reported impact was a decrease in total number of employment hours offered (39.1%).” 87

[255] The results also show that 51 per cent of those with award-reliant employees indicated that the increase had a negative impact on intentions to put on new staff. ACCI acknowledged some limitations in the survey method but submitted that the results reflected the genuine views of those members who had responded. In its view, the true effects of the increase can only be determined by economic modelling.

[256] Based on its survey, CCIQ submitted that last year’s increase led to more than one in four businesses decreasing hours offered to employees, and a significant reduction in the number of full-time employees (17.5 per cent of businesses reduced the number of full-time employees in their business), linked with a similar increase in the number of casual employees (13 per cent).

[257] Business SA contended that last year’s increase together with other increases in labour costs, such as the impact of award modernisation, hindered employers’ ability to maintain or increase employment levels. Business SA also submitted that these increases in labour costs, combined with continuing uncertainty in the labour market for 2011, will limit hiring intentions of many small businesses within labour-intensive award-reliant sectors.

[258] MGA submitted, based on its survey, that 62 per cent of employers reduced the number of employees and that there were also reductions in hours and substitution of junior employees for adult employees. The survey indicated that there was a 42 per cent increase in the number of junior employees.

[259] The survey conducted by VACC of its members in Victoria and Tasmania indicated last year’s wage increase had a negative effect on the hiring intentions of 41 per cent of respondents. VACC also noted that while the hiring of full-time and part-time staff had decreased, the number of junior staff and apprentices and trainees had increased by 9 and 10 per cent, respectively. VACC stated that:

“A logical explanation for this would be the fact that junior employees and employees working under training arrangements are paid at lower rates. This would indicate that hiring these specific groups is another measure to absorb the increase in wages costs.” 88

[260] AHA submitted that the results of the survey it undertook indicate that 51 per cent of its members reduced employee hours in response to the Annual Wage Review 2009–10 decision.

Conclusions

[261] We reiterate the view expressed by the Panel in the Annual Wage Review 2009–10 decision that the obtaining of employment and the pay and conditions attaching to the job concerned are both relevant considerations when considering social inclusion. It is appropriate to deal first with some submissions concerning the effect of last year’s decision on employment.

[262] A number of parties submitted that the adjustment to minimum wages in the Annual Wage Review 2009–10 decision resulted in negative employment effects. To provide some context, we note that industry employment data indicate that for the period February 2010 to February 2011 total hours worked increased by 2.3 per cent. Hours worked in industries with the greater proportion of the award-reliant workforce grew even more strongly—Accommodation and food services by 7.1 per cent, Retail trade by 3.9 per cent, Administrative and support services by 4.5 per cent, and Health care and social assistance by 6.8 per cent. These data are shown in the following table:

Table 5.3: Changes in employment by industry—February 2010–February 2011

 

Percentage

Employment

 
 

In industry who are award reliant

Of award reliant employees in industry

Total

Full-time

Part-time

Actual hours worked

Change %

Mining

1.9

0.2

15.6

16.4

–11.3

12.3

Manufacturing

14.6

8.9

–1.9

–0.3

–11.3

–2.0

Electricity, gas, water and waste services

3.1

0.2

13.6

13.2

21.3

8.6

Construction

10.0

3.9

1.4

3.7

–12.2

2.6

Wholesale trade

10.9

3.4

–2.5

–2.4

–2.8

–2.6

Retail trade

22.3

15.1

4.1

5.6

2.7

3.9

Accommodation and food services

45.2

21.4

7.8

10.8

5.4

7.1

Transport, postal and warehousing

8.0

2.4

6.0

8.7

–4.2

6.3

Information media and telecommunications

5.7

0.7

3.0

1.2

10.8

4.4

Financial and insurance services

2.1

0.6

–2.4

–0.4

–10.6

–2.4

Rental, hiring and real estate services

22.8

3.0

21.4

22.8

17.6

24.7

Professional, scientific and technical services

4.2

1.9

2.4

2.2

3.3

–0.5

Administrative and support services

31.4

11.8

3.3

5.8

–0.4

4.5

Public administration and safety

1.9

0.9

2.7

2.6

3.0

2.0

Education and training

5.1

3.2

0.9

1.6

–0.7

–1.3

Health care and social assistance

17.1

14.2

7.6

11.2

3.0

6.8

Arts and recreation services

15.1

1.8

4.0

14.2

–7.0

11.1

Other services

27.2

6.5

–3.8

–4.2

–2.0

–3.9

All industries

15.2

100.0

2.8

3.9

-0.1

2.3

Note: Data on total employment are seasonally adjusted. Data on full-time and part-time employment and actual hours worked are in original terms.

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003; ABS, Employee Earnings and Hours, Australia, May 2010, Catalogue No. 6306.0.]

[263] Quarterly data for the same period for the award-reliant industries was uneven during the four quarters to February 2011 but increased strongly in all cases in the last two quarters.

Chart 5.1: Index of actual hours worked by selected industries—February 2010–February 2011

Note: Data are in original terms.

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003.]

[264] Despite the recent restraint in consumer spending, reflected in retail sales, these data indicate strong growth in hours worked in the retail industry over the 12 months to February 2011. Changes in hours worked in the industry over the decade to February 2011 are shown in Chart 5.2:

Chart 5.2: Employment in Retail trade by actual hours worked—February 2001–February 2011

Note: Data are in original terms.

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2011, Catalogue No. 6291.0.55.003.]

[265] This chart indicates that after a significant period of growth in the early part of the decade, building to a peak in February 2008, hours worked in the retail trade declined sharply, no doubt due to the effects of worsening economic conditions. The dip in hours worked was severe, but the recovery has been strengthening in the last two years and particularly in the last 12 months. By comparison with the all industries data, which indicate a steady recovery from the effects of the GFC, hours worked in retail have shown more volatility.

[266] The results of the employer surveys do not accord with official data in relation to hours worked. The contention that last year’s increase in minimum wages resulted in reductions in hours worked in award-reliant industries, and generally, has not been made out. While the decision may have had negative employment effects for some employers in some industries the surveys cannot be relied on for any conclusions about the aggregate effects either from an industry or an economy-wide perspective. In this context we note the view expressed by the Australian Government that the strength of demand for labour is such as to temper if not neutralise the impact of any minimum wages increases on employment. The Australian Government’s suggestion that the increase in minimum wages last year increased disposable incomes is also relevant.

[267] The ACTU referred to two new studies concerning the employment effects of increases in minimum wages. While this issue continues to be the subject of debate and neither study was undertaken in an Australian context, these two new studies are an important contribution and support the view that increases in minimum wages, of the magnitude the studies deal with, are unlikely to lead to negative effects on employment. The authors of the UK study reinforce the need to treat studies concerning the relationship between minimum wage rises and employment levels with care, suggesting that the divergent outcomes in US studies reflect different estimation strategies, data types and population samples. 89

[268] Incentives to work remain a relevant issue for consideration. Material presented by the ACTU indicates that minimum wage workers (especially women) respond positively to increases in minimum award wages. There are indications in ACOSS’s submissions that the disincentives resulting from relatively high effective marginal tax rates may be reducing somewhat. We note the submission, advanced principally by Ai Group, but supported by a number of other parties, that the effect of minimum wage levels on the incentive to work must be balanced against the impact on the demand for labour, with persistent high labour underutilisation rates indicating that wages do not need to be increased. We agree that there are competing demand and supply factors at work, which must be considered in the context of broader labour market developments including, in current circumstances, the strength of demand for labour reflected generally in recent and expected labour market outcomes. Clearly the level of minimum wages does have an important role to play in providing an incentive to work, although that incentive must be considered alongside any effect on the demand for labour and general economic conditions.

6. Encouraging Collective Bargaining

[269] As part of the modern awards objective Fair Work Australia 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 the need to encourage collective bargaining. 90

[270] The Australian Government noted the indirect effects of minimum wage increases on other wages:

“The Panel’s decision can also affect other wages indirectly including by acting as a floor for wage increases or workplace bargaining.

According to the Department of Education, Employment and Workplace Relations (DEEWR) Workplace Agreements Database, around 37 per cent of current federal enterprise collective agreements (CAs) covering 24 per cent of all employees under Federal enterprise agreements are linked in some way to annual wage review outcomes.

Only 14 per cent of all federal CAs, covering five per cent of employees, automatically flow on annual wage review decisions. For the remaining 23 per cent that are also linked in some way to annual wage review outcomes, conditions and/or qualifications of some type apply.”91

[271] Referring to the 2009 Australian Fair Pay Commission’s Wage-Setting Review, ACCI and CCIWA supported the Australian Government’s submission in that wage review, that minimum wage increases can also act as a floor for workplace bargaining. A higher minimum wage increase is likely to encourage higher wage claims and outcomes in workplace bargaining negotiations, and hence flow-on to a greater number of employees.

[272] Some parties submitted that significant increases in minimum wages can discourage collective bargaining. For example, Ai Group argued that minimum wage increases should be at a level significantly below average enterprise agreement wage outcomes, so as not to detract from the important role of agreement making under the Fair Work Act.

[273] The Victorian Government submitted that a minimum wage that is set too high is likely to provide a disincentive to bargaining, and in turn negatively affect productivity, as sustained improvements in productivity are facilitated through bargaining. It also submitted that, in encouraging collective bargaining, it is important to have regard to small and regional businesses that are disproportionately award-reliant.

[274] In relation to productivity improvements and bargaining, the ACTU submitted that:

“The integrity of the wage structure must be maintained at all classification levels otherwise there will be no incentive for employers to seek productivity improvements through bargaining and award-dependent workers will be pressured to trade off other conditions in order to maintain real wages.”92

[275] The ACTU also submitted that there is significant incentive for award-reliant employees to bargain where they are able to do so. It submitted that while data on the relationship between minimum rates and bargaining outcomes for specific classifications are not widely available, it relied on estimates from APESMA’s Professional Engineers Remuneration Survey. Those estimates show that the gap between the market rate and the award rate for high-skilled jobs is large and increasing.

[276] The Queensland Government also noted that the current gap between wage outcomes for minimum wage employees and those able to bargain provides significant incentive for employees to seek to bargain for wage increases and submitted that:

“The fact that some employees have remained award reliant, despite the fact their rate of pay falls well short of the pay of those on agreements, suggests that it is not a matter of choice that employees remain subject to award only rates. The reality is that, for a variety of reasons, not all employees are able to bargain with their employers for wage increases.”93

[277] The ACTU submitted that the compression of relativities in the award classification structures is a serious problem which contributes to the declining relevance of award wages to market rates. In response, ACCI argued that there was no evidence to support the assertion that changes in the relativities between award classification levels had an adverse impact on bargaining and agreement making. ACCI also stated that logic suggests a safety net framework of award classification rates sitting below the level of bargained wage outcomes should act as an incentive to bargain and reach agreement, not act as a disincentive as the ACTU asserts.

[278] In its submission in reply, ACCI welcomed the widening gap between award minimum rates and market rates and the decline in the proportion of award-reliant employees. It submitted that award minimum rates are only intended to be a safety net of fair minimum wages. It submitted that:

“The legislative framework intends to actively encourage these outcomes in a workforce that is now far more varied and diverse than it was when award relativities were established for a largely award dependent workforce.”94

[279] ACCI and CCIWA noted that Fair Work Australia will commission research on how minimum wage increases impact on the incentive to bargain, and recommended that Fair Work Australia should be cautious in its conclusions on the impact of minimum wage increases on bargaining until the research is conducted.

Statistical information

[280] ABS data show that, despite experiencing a decline between 2006 and 2008, the proportion of employees on collective agreements rose between 2000 and 2010, with the largest increase occurring between 2008 and 2010 (Chart 6.1). In contrast, the proportion of employees on awards decreased steadily over the period, from 23 per cent in 2000 to 15.2 per cent in 2010.

Chart 6.1: Methods of setting pay

Note: As defined by the ABS, individual arrangements include registered or unregistered individual agreements and owner managers of incorporated businesses.

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

Conclusions

[281] In the Annual Wage Review 2009–10 decision the Panel discussed the relationship between increases in minimum wages and enterprise bargaining and came to the following conclusions:

“We accept that the gap between award minimum wages and bargained wages is likely to increase the incentive for employees to bargain. On the other hand, a large gap may be a disincentive for employers to bargain. Furthermore, minimum wages are only one element of the incentive to bargain, which may be more directly affected by other conditions, such as penalty rates, and economic factors including those specific to the enterprise concerned. Looked at more broadly, there is no evidence that the incentive to bargain has been adversely affected by the increases in minimum wages which have occurred over the last decade. There has been a very significant reduction in award reliance across all industries, including those which are traditionally regarded as award-reliant. The evidence, although not completely satisfactory, indicates that increases in minimum wages are compatible with the continuing encouragement of enterprise bargaining.” 95

[282] The methods of pay setting data referred to above suggest that there has been a continuing growth in the proportion of employees covered by collective agreements and individual arrangements with a corresponding reduction in award reliance. The conclusions reached by the Panel last year remain apposite.

7. The Principle of Equal Remuneration for Work of Equal or Comparable Value

[283] As part of the minimum wages and modern awards objectives we are required to take the principle of equal remuneration for work of equal or comparable value into account. 96

[284] In the Annual Wage Review 2009–10 decision the Panel concluded:

“On the basis of the material we conclude that an increase in minimum wages is likely to assist in promoting pay equity given the relatively high proportion of women among the award-reliant, although it may not be the most effective means for achieving this end.” 97

[285] There was a variety of views on the effectiveness of minimum wage increases in achieving gender pay equity. The ACTU submitted that awards contributed to correcting the gender pay gap for low-paid workers:

“Within low-paid industries and occupations, gender differences in earnings tend to be lower among those in the bottom quartile of the earnings distribution compared with those at the top. Awarding a percentage increase to those above C10 consistent with our claim will help combat inequalities for award dependent workers at all levels of the classification structure.” 98

[286] The Queensland, South Australian and Western Australian Governments submitted that as women are more likely to be award-reliant and low paid, minimum wage increases can assist gender pay equity.

[287] ACOSS also submitted that minimum wage adjustments contribute to a reduction in the gender pay gap and that international research suggests that adequate minimum wages are a key factor in addressing the gender wage gap, as most women are located near the bottom of the wage distribution.

[288] The Australian Government submitted that the flow-on effects to bargaining may have a negative effect on overall gender pay equity:

“Minimum wage increases can lead to temporary increases in female earnings vis--vis males, as a greater proportion of women are low paid award reliant employees. However, when these wage increases flow through to other wages indirectly, including by acting as a floor for workplace bargaining, men tend to benefit more.” 99

[289] The Australian Government submitted that issues of gender pay gaps can be best addressed through other mechanisms in the Fair Work Act.

[290] ABI agreed with this analysis and submitted that, as minimum wages set a floor for collective bargaining, increases in the minimum wage could only temporarily address gender pay equity issues.

[291] Ai Group suggested that if minimum wages adjustments discourage bargaining this may act as a barrier to achieving gender pay equity because of:

“[T]he recognised affects [sic] that collective bargaining has on reducing gender based pay inequity and the mechanisms which exist in the FW Act targeted at assisting employees who are primarily engaged pursuant to modern awards or who are low paid, to engage in collective bargaining. We submit that the Panel needs to be mindful of unintended barriers which may be created in achieving this outcome.” 100

[292] CCIWA argued that in considering adjustments to minimum wages the principle of equal remuneration should be balanced with other issues, such as the incentive to bargain, and any order resulting from the Equal Remuneration Case. 101 ACCI submitted that there is nothing in the equal remuneration principle to compel the Panel to increase minimum wages and submitted that:

“[T]he pay gap between men and women is lowest for those employees most affected by the minimum wage decisions.” 102

[293] In citing Fair Work Australia’s Research Report 5/2011 Review of Equal remuneration principles 103 findings that women have been found to be disproportionately represented amongst the low paid, the ACTU submitted:

“[T]here is compelling evidence to support the conclusion that increases to modern award minimum wages promote pay equity; and failure to maintain real wages across all levels of the classification structure will adversely affect female earnings.” 104

[294] In citing the same research finding the Ai Group submitted that:

“If these findings are accurate, and ‘discrimination and other differences between men and women, including differing motivations and preferences’ are major causative factors for the GPG, the role which adjustments to minimum wages will have in addressing pay inequity is likely to be small . . .” 105

“Importantly, in seeking to identify the key determinants of the wage gap in Australia the report highlights that there is conflicting research which is difficult to reconcile on the underlying factors which drive the GPG and that conclusions regarding the causative factors for undervaluation of women’s work are far from unequivocal.” 106

[295] In its submission in reply, the ACTU argued that the report’s findings support minimum wage adjustments as part of a range of mechanisms to address pay equity. It submitted:

“[A] comprehensive and multi-faceted approach to reducing pay inequity, that includes fair minimum wages, is required . . .

. . .

The existence of other mechanisms in the Act to address pay equity does not absolve the Panel of its responsibility to set minimum wages that promote equal pay for work of equal or comparable value. Indeed, the Panel is uniquely placed to deal with gender pay issues for employees who are unable to access bargaining and thus remain award-dependent.” 107

Conclusion

[296] A number of parties, including the ACTU, ACOSS and the Queensland, South Australian and Western Australian Governments, submitted that minimum wage increases contribute to reducing the gender pay gap as women are disproportionately represented in low paid award-reliant industries. Others, including the Australian Government, Ai Group and ACCI submitted that although the principle of equal remuneration should be considered, mechanisms other than minimum wage-setting, such as equal remuneration orders and collective bargaining, may be more effective in addressing pay equity issues. The Australian Government and Ai Group further argued that using minimum wages to address gender pay inequity could have negative consequences for the gender pay gap through the effect on wages bargaining. We note that research has already been programmed into the effects of minimum wage increases on gender pay equity. The parameters of that research may require reconsideration in light of our decision in this review. Other things being equal, the principle of equal remuneration is a factor in favour of an increase and we agree with those who submitted that an increase in minimum wages is likely to assist in some measure in promoting pay equity, although in our view other means are available under the Fair Work Act to address such issues more directly.

8. The Form of the Adjustment

[297] In its Annual Wage Review 2009–10 decision the Panel expressed the view that there was a strong case for a percentage adjustment to all modern award minimum wages but that it had decided on a dollar increase for two reasons, namely: the circumstances at the time favoured a greater benefit for the lowest paid; and there was very little data available concerning the impact of a percentage increase on costs and employment. The Panel indicated that it expected to be addressed on these issues in the current review. Despite this request, we were provided with only limited additional information as to the cost impact of a percentage increase.

[298] The real values of award wages above the C10 level has fallen in the past decade, by as much as 13 per cent. 108 The ACTU provided an analysis of the effect of flat dollar increases on the relativities between each of the award rates of pay that are now contained in the Manufacturing and Associated Industries Award 2010 over the period from 1991 to 2010. For example, the relativity of the C2(b) rate of pay to the C10 rate of pay has declined by 24.8 percentage points (from 160 per cent to 135.2 per cent) over that period. It also shows that each of these award rates of pay has fallen relative to average earnings, with particularly large decreases at the higher award levels.

[299] The ACTU claimed that this compression of wage relativities is unfair because it diminishes the extent to which award rates of pay properly reflect the level of skill and responsibility inherent in different jobs and the value attached to those jobs. It also submitted that unless award rates for middle and upper level award classifications are properly maintained, there is a serious risk that the classifications will cease to have any practical significance. It also referred to adverse consequences for workforce development, productivity, prosperity and social inclusion as compression of relativities reduces incentives to improve skills. Finally it submitted that the erosion of award rates of pay at the middle and upper classification levels lowers the floor for enterprise negotiations and weakens the bargaining position of employees.

[300] In supporting its claim for an increase of $28 per week in award wage rates up to the C10 level and an increase of 4.2 per cent for rates above that level, the ACTU provided estimates of the impact on the CPI of a range of outcomes based on a uniform percentage increase combined with a flat dollar increase at the lower levels. These ranged from a 0.10 percentage point increase in the CPI for a $15 increase to award rates from C14 to C10 and a 2.3 per cent increase to award rates above C10, to a 0.19 percentage point increase in the CPI for a $30 increase to award rates from C14 to C10 and a 4.5 per cent increase to award rates above C10.109

[301] In its submission in reply ACCI supported a flat dollar increase and opposed the ACTU’s claim. It submitted that priority should be given to the needs and circumstances of the low paid rather than maintaining relativities. It argued that the priority to maintain relativities is of lower importance than it was 10 or 20 years ago, given that modern awards are now intended to be an underpinning safety net of minimum entitlements, rather than instruments that determine actual entitlements, and that fewer employees are now reliant on award rates.

[302] ACCI rejected the argument that the widening gap between award rates and market rates of pay is a matter for concern, submitting that, instead, these developments should be welcomed in circumstances where award classification rates are only intended as a safety net. It also rejected the arguments that the compression of relativities removes incentives for workers to improve their skills or adversely impacts upon bargaining, stating that it saw no evidence for either of these claims.

[303] Ai Group also supported a flat dollar increase as opposed to a percentage increase, urging us to give priority to the needs of the low paid over any alleged negative impact of compressed relativities on higher skilled workers. It argued that higher skilled workers are typically in high demand and receive considerable overaward payments which substantially reduces any detrimental impact of compressed relativities. The SAWIA also supported a flat dollar increase.

[304] ABI, AHEIA and APESMA all expressed support for a percentage increase in order to maintain the relativities between classifications. However, in its submission in reply ABI clarified that it did not support the ACTU’s proposal that a greater percentage increase should be applied to employees earning below the C10 rate. It argued that:

“[D]ifferential relativities for classifications with higher work value are a way of encouraging employees to take up training and acquire more and better skills. To the extent that this is the case it would seem that the need to differentiate the value of classifications is demonstrably greater at the lowest classifications where employees have the fewest skills and also the least experience of training and skills acquisition.”110

[305] The ACTU submitted that the current annual wage review may not provide adequate scope to consider the complex issues involved in restoring wage relativities. It asked us to provide guidance in this decision as to how these issues might be pursued during 2012, including during the 2012 review of modern awards. In its initial submission, the ACTU proposed that the relativities from the Structural Efficiency Principle (August 1988) represent a floor to restoring relevance and skill-based classification structures.

[306] In its submission in reply, Ai Group urged us not to take up the ACTU’s request for guidance, submitting that if the unions wish to pursue the matter they should develop and lodge a claim. Ai Group made it clear it intends to oppose any such claim. It submitted that it would be extremely unfair to employers to restore relativities as the compression is due to lower paid workers securing higher wage increases than they would have received if a percentage increase had been awarded. ABI also stated in its submission in reply that it did not support the idea of a restoration of historical award relativities as proposed by the ACTU.

[307] Section 134 of the Fair Work Act requires the Panel to ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net. The matters which must be taken into account in an annual wage review include relative living standards and the needs of the low paid. The nature of increases to award rates in annual reviews over the last twenty years has compressed award relativities in the award classification structures and reduced the gains from skills acquisition. The position of the higher award classifications has also been reducing relative to market rates and to average earnings. Furthermore, while the real value of minimum wages has been maintained at the lower award classification levels, it is clear that the real value of minimum wages above those levels has fallen. On the information available to us at present we accept that many people have their wages set at award rates higher up the scale. The ACTU’s approach, which involves a dollar increase at the lower levels, would involve further compression of relativities below the C10 level. For these reasons we consider that in this review we should decide on an increase which will not further compress award relativities and which will at least maintain the real value of minimum award wages.

[308] It was also suggested by the ACTU that we should give guidance on the approach to be adopted to facilitate the restoration of relativities in award structures. Our decision in this review is based on the current economic and other circumstances including developments since the last annual wage review. We do not think we should give any indication as to the appropriateness of award relativities beyond what is necessary for this decision. We note, however, the submissions advanced by some employers that it would be unfair to restore relativities when the practice of awarding flat dollar increases in past annual reviews has resulted in higher increases for employees in the lower classification levels than would have occurred if relativities had been maintained. In our view that submission raises a serious argument against any claim to restore relativities.

9. Exceptional/Special Circumstances Claims

[309] A number of parties sought a delay in the operative date of any increase in minimum wages arising from this review on the basis of exceptional circumstances. Most reasons relate to the effect on employers and employees of recent natural disasters, particularly flooding in late 2010 and early 2011 in Queensland, New South Wales and Victoria and Cyclone Yasi. The submissions in relation to the effects of the recent natural disasters on the economy have been referred to in Chapter 3.

[310] Sections 286 and 287 of the Fair Work Act provide that any determination varying modern awards, and the minimum wage order resulting from an annual wage review, are to operate from 1 July unless the Panel is satisfied that exceptional circumstances justify a later date of operation. In each case, however, the later date of operation must be confined to the particular situation to which the exceptional circumstances relate.

[311] ACCI, Business SA and R&CA sought a deferral of up to 12 months in any increase in modern award minimum wages for specified employers. CCIQ sought a 12 month deferral for all Queensland businesses because of the number of businesses who are seeking to rebuild following the flood events and Cyclone Yasi. Ai Group submitted that the Panel should set an operative date of 1 January 2012 for any minimum award wage increase for employers badly affected by natural disaster. AHA proposed that any increase be deferred for qualifying businesses or the increase phased-in. Growcom, while acknowledging a generally applicable minimum wage increase may be justified, submitted that it would support affected individual producers that wished to have any increases deferred throughout 2011.

[312] The Queensland Government asked the Panel to take into account both the need to protect the low paid and the financial hardships faced by many disaster-affected Queensland employers, and proposed that wages should be increased to protect their real value, while recognising that an increase in real wages might be difficult for many employers who are also suffering following the floods and cyclone.

[313] The ACTU opposed the proposals for deferral, submitting that a deferral would diminish the living standards of low-paid workers and that they should not bear the burden of reconstruction through lower real incomes. It argued that a comprehensive range of measures exists to assist those affected by natural disasters and that these publicly funded programs are the most appropriate means of assisting affected employers.

[314] There were a number of proposals for identifying employers who should receive the benefit of a deferral. Some parties submitted that the approach adopted by the Australian Fair Pay Commission and the Australian Industrial Relations Commission (AIRC) in identifying exceptional circumstances recipients (through receipt of drought relief subsidies) would be a relevant approach for this year’s review. ACCI suggested that Australian Government schemes, such as the Disaster Income Recovery Subsidy or Australian Government Disaster Recovery Payment, may provide a basis for identifying relevant employers. Ai Group highlighted the Queensland Government’s Natural Disaster Relief and Recovery Scheme for Small Business and the Exceptional Measures Assistance relating to Tropical Cyclone Yasi scheme.111

[315] Ai Group also submitted that, in addition to identifying eligible businesses as those in receipt of government assistance, Fair Work Australia should establish a separate process to enable individual businesses to qualify for any deferral by demonstrating they have suffered direct financial hardship as a result of a recent natural disaster.

[316] We are conscious of the hardship which has been inflicted on many businesses, particularly small businesses, by recent natural disasters in many parts of Australia and in Queensland in particular. A deferral of the rise in minimum wages would make some contribution towards easing the burden on those businesses. There are, however, a number of matters which weigh against the proposals which have been advanced. Of these, by far the most significant is the lack of any obvious mechanism to properly identify the employers affected and to whom the deferral should apply. None of the state or federal government programs referred to provide a ready means of identifying all such employers. Ai Group’s suggestion that individual hardship cases could be assessed before 1 July seems to us to raise insurmountable practical problems. There is an unacceptable risk of significant unfairness to employers and employees if the deferral mechanism does not effectively target the group in need. For similar reasons the CCIQ proposal that all Queensland employers be exempted for a period of 12 months is not an acceptable approach.

[317] We are also conscious that a deferral of a wage increase would place some of the burden of adjustment on the lowest paid in the community, who might themselves be in a difficult financial position because of the effects of natural disasters on themselves and their families. Many low-wage workers will also have been directly affected by the floods and cyclone (not only in Queensland). We have no information on how the losses have been distributed across the different classes of employees and enterprises. It is also relevant that governments are already providing assistance through the various programs.

[318] There are some other relevant considerations. The RBA is forecasting that in the second half of 2011 economic activity in Queensland will be boosted by spending on reconstruction. In its May 2011 Statement on Monetary Policy the RBA refers to a survey of business in Queensland that found that more than three-quarters of firms expected that their activity would have fully recovered within three months of the survey’s date (late January 2011). 112 This information adds weight to our concerns about the difficulties in identifying the relevant class of employer. On balance we have decided not to make any provision for deferral of the increase for employers affected by natural disasters.

[319] Some parties submitted that the impact of natural disasters should be taken into account in assessing the amount of any increase in minimum wages generally. To the extent that those impacts are reflected in the various economic measures that has been done, but we have not made any specific discount for the effects of natural disasters.

[320] There were a number of other proposals for special treatment, not related to operative date. ARA submitted that award-reliant retail businesses should be exempt from any minimum wage increase because of difficult trading conditions in the sector and costs associated with the transition to modern awards. The R&CA and MGA made similar submissions.

[321] NRA submitted that we should make provision for any adjustment in minimum wages in the Fast Food Industry Award 2010 and the General Retail Industry Award 2010 to be offset by any additional amount employers are required to pay by the commencement of the relevant modern award transitional provisions on 1 July 2010.

[322] The ACTU opposed these proposals, arguing that affording differential treatment to particular industries was inconsistent with the Panel’s obligation to establish and maintain a fair and relevant minimum safety net, and would distort award relativities, and lead to disparate wage outcomes for award-dependent employees with similar or comparable levels of skill.

[323] In its Annual Wage Review 2009–10 decision the Panel dealt with claims for special treatment based on the alleged costs of award modernisation. 113 Nothing has been advanced this year which has caused us to review the conclusions reached then—either in relation to the costs of award modernisation or in relation to the desirability of giving special treatment to a particular industry, or part of an industry, because of award modernisation. To the extent that difficult trading conditions are relied on, it is relevant that aggregate hours worked in award-reliant industries have increased quite significantly in the last 12 months. While retail sales are flat, they are still growing. For these reasons we have decided not to adopt these proposals either.

10. The Decision

[324] In this chapter we state the increase we have decided upon in modern award minimum wages and the increase in the national minimum wage for award/agreement free employees and give our reasons for decision. We have set out the minimum wages objective and the modern awards objective earlier in this decision. In carrying out an annual review the Panel is required by those provisions to maintain a safety net of fair minimum wages and to provide a fair and relevant safety net of terms and conditions. A range of specified matters is to be taken into account. We have discussed these in more detail in earlier chapters and the views set out in this chapter should be seen in light of those earlier chapters.

[325] Real GDP rose by 2.7 per cent over the year to the December quarter 2010. Notwithstanding the negative impact of the natural disasters on growth in the December quarter 2010, the economy performed comparatively well over the 12 months against a number of other developed countries, particularly in the December quarter 2010. Whilst flooding and Cyclone Yasi detracted from growth in the December quarter 2010 and the March quarter 2011, principally due to the impact on coal production in Queensland, the outlook for economic growth is favourable, with above-trend real GDP growth forecast over the next two years.

[326] Productivity as measured by indices of GDP per capita and GDP per hour worked in the market sector grew in the year to December 2010, by 1.2 per cent and 1 per cent respectively. However, there was a fall in GDP per hour worked in the whole economy of 0.5 per cent. For our purposes the most relevant measure is GDP per hour worked in the market sector. The profit share has grown slightly over the year to the end of 2010 but is still below the level recorded before the GFC. The wages share has declined slightly also, and is at its lowest level in the last 10 years.

[327] Turning to price movements, there are a number of measures of inflation which should be referred to. They are the CPI, the trimmed mean, the weighted median and the ALCI for employee households. The movements in these indices since the last annual wage review are shown in Table 10.1 below:

Table 10.1: Inflation—March 2010–March 2011

 

March 2010 to March 2011
%

    CPI

3.3

    Trimmed mean

2.3

    Weighted median

2.2

    ALCI—employee households

4.9

[Source: ABS, Analytical Living Cost Indexes for Selected Australian Household Types, Mar 2011, Catalogue No. 6463.0; ABS, Consumer Price Index, Australia, Mar 2011, Catalogue No. 6401.0.]

[328] The relatively high increase in the ALCI is attributable to increases in mortgage interest rates. In recent years the ALCI has tended to be more volatile than the other measures. On the basis of the RBA’s estimates, underlying inflation is between 2.2 and 2.3 per cent and has been within the RBA’s medium-term target band for the last four quarters.

[329] In relation to wages growth, AWOTE increased by 3.8 per cent in the 12 months to February 2011 and the WPI increased by 3.8 per cent in the 12 months to the March quarter 2011. The average annualised wage increase in new collective agreements finalised in the September quarter 2010 was 4.2 per cent—4.7 per cent in the public sector and 4.1 per cent in the private sector.

[330] Employment and aggregate hours worked have continued to grow. In the year to April 2011 full-time employment increased by 2.8 per cent and part-time employment increased by 1.8 per cent. The employment to population ratio had increased to 72.9 per cent in April 2011, and is now near its previous peak, reached in December 2007. Monthly hours worked increased by 2.3 per cent in the year to April 2011. Unemployment has fallen from its peak of 5.8 per cent in May 2009. In April 2011 unemployment had declined to 4.9 per cent, continuing the downward movement noted in the last annual wage review.

[331] Treasury noted in the 2011–12 Budget papers that the world economy is continuing to recover from the GFC but the recovery is uneven. Developments in the United States and China will largely determine the nature of the global recovery, with those economies currently in different phases of the economic cycle. Treasury noted a number of downside risks to recovery but also noted potential for rapid improvement. In particular Australia’s major trading partners are expected to grow strongly. Growth in GDP in Australia is expected to be 2 per cent in 2010–11, 4 per cent in 2011–12 and 3 per cent in 2012–13, underpinned by unprecedented growth in resources investment and strong growth in non-rural commodity exports. There will be significant differences between sectors, with some sectors experiencing challenging conditions due to tighter macroeconomic settings, consumer caution and the strong Australian dollar.

[332] Household consumption is expected to increase by 3 per cent in 2011–12 and 2012–13. Unemployment is expected to decline to 4 per cent by the middle of 2013. Underlying inflation is expected to increase to 3 per cent by the June quarter 2013. Headline inflation has increased markedly in the first half of 2011 due to the impact of the floods and Cyclone Yasi on fruit and vegetable prices and the recent rise in oil prices. Wages growth increased during 2010 from relatively suppressed levels following the GFC. Wages growth is now around trend levels and expected to increase gradually as the labour market tightens.

[333] In the 12 months since the last review, Australia’s economy has continued to perform strongly despite the impact of the recent floods and Cyclone Yasi which detracted from GDP growth. Production should recover, creating stimulus for GDP growth in the June and September quarters. Earnings and employment continued to grow and, despite increases in headline inflation, underlying inflation is currently at an acceptable level, although forecast to gradually increase over the next two years. The forecasts for 2011–12 and 2012–13 suggest that Australia’s immediate overall outlook is positive, although not all sectors are doing equally well and there are some risks to the international economy.

[334] The economy is performing reasonably well, labour productivity is growing, the profit share remains at historically high levels and underlying inflation is well within the RBA’s medium-term target band. Employment is growing, unemployment is reducing and labour force participation remains high. In the circumstances a significant increase is appropriate which will improve the real value of award wages and assist the living standards of the low paid. For the reasons discussed in Chapter 8 we have adopted a uniform percentage increase. The increase in modern award minimum wages we have decided on is 3.4 per cent. Weekly wages will be rounded to the nearest 10 cents.

[335] The national minimum wage for award/agreement free employees is currently set at the minimum wage for the C14 classification, the lowest wage level in the Manufacturing Award. No cogent basis was advanced for disturbing that relationship. The national minimum wage will be $589.30 per week or $15.51 per hour. The hourly rate has been calculated on the basis of a 38 hour week for a full-time employee, as required by s.62 of the Fair Work Act. This constitutes an increase of $19.40 per week or 51 cents per hour.

11. Transitional Australian Pay and Classification Scales, Division 2B State Awards and Other Transitional Instruments

[336] As indicated in Chapter 1, we are required by the Transitional Act to review a number of types of transitional instruments. They are transitional APCSs, Division 2B State awards and State reference transitional awards. Division 2B State awards are of two kinds—enterprise and non-enterprise. State reference transitional awards include:

[337] If we decide to vary any of these instruments there is no requirement to publish the variations.114 In its Annual Wage Review 2009–10 decision the Panel decided to adjust all transitional instruments except for Division 2B State awards.115

Transitional APCSs and State reference transitional awards

[338] There was general agreement among those who addressed the matter, that minimum wages in transitional APCSs and State reference transitional awards should be adjusted along with those in modern awards. ABI, however, submitted that wages in enterprise-based transitional instruments should not be varied in the same way as other transitional instruments.116

[339] It may be important to indicate at the outset that pursuant to provisions in the Transitional Act, Fair Work Australia is required to terminate certain kinds of transitional instruments, known as modernisable instruments, as soon as practicable. A Full Bench has been established for this purpose.117 Modernisable instruments include transitional APCSs and State reference transitional awards, subject to a number of exclusions. Fair Work Australia must not terminate modernisable instruments of any of the following types:

[340] We do not think the possibility that various transitional instruments may be terminated is relevant to our deliberations.

[341] The only issue of substance that arose concerns the adjustment of enterprise instruments. ABI submitted that minimum wages in transitional APCSs derived from enterprise instruments and State reference transitional enterprise awards should not be varied in the same way as other transitional instruments because of the increases in minimum wages in these instruments through bargaining. ABI submitted:

“In its 2010 decision the Panel varied wages in Division 2B State enterprise awards as well as transitional enterprise APCSs and state reference transitional enterprise awards. However enterprise instruments are often the product of bargaining. This means both that they may have increases which are higher than minimum increases and also that they may contain a series of future increases. In these circumstances increasing wages by the increases determined for modern awards amounts to a double dipping unless there are express absorption terms.

ABI proposes that the Panel consider an absorption mechanism to avoid this outcome. These instruments had wages increased by $26 from 1 July 2010 (with effect from the first full pay period to commence on or after 1 July 2010). One approach to absorption could be for the Panel to allow


[342] The ACTU, however, argued against this proposal, submitting that:

“[E]nterprise awards are part of the safety net and should be adjusted in line with modern awards . . . we submit ABI’s concerns are more appropriately dealt with via an application to vary the terms of a specific enterprise instrument. The adoption of a general adjustment mechanism may have inequitable or unforeseen consequences for employees covered by enterprise instruments.”119

[343] On the material and submissions advanced we think it is appropriate to adjust minimum wages in all of the transitional instruments which form part of the award safety net, even where the instrument applies on an enterprise basis. The increase we have decided on will apply to all transitional APCSs and State reference transitional awards.

Division 2B State awards

[344] Division 2B State awards are instruments derived from State awards in New South Wales, Tasmania, South Australia and Queensland. They cover employers and employees previously covered by state industrial relations systems who are now subject of a reference of state powers to the Commonwealth. Division 2B State awards commenced on 1 January 2010. Subject to some exceptions, Division 2B State awards, other than enterprise ones, terminated on 31 December 2010. The operation of Division 2B State awards and the transition from coverage under those awards to coverage under modern awards are dealt with in a decision given by a Full Bench on 5 November 2010.120

[345] There are apparently only three types of Division 2B State awards which have not been terminated under the transitional provisions. First, there are a number of enterprise awards. Secondly, there are a number of awards which continue to operate to the extent that they cover certain employees to whom particular training arrangements apply. Thirdly, a number of awards continue to operate to the extent that they apply to employees participating in employment schemes in Queensland known as the Community Jobs Plan and the Green Army.

[346] Dealing first with the adjustment of minimum wages in Division 2B State enterprise awards, ABI made the same submissions in relation to those enterprise awards as it made in relation to enterprise-based transitional instruments generally. NFF urged us to consider the cost implications of an adjustment. Minimum wages in Division 2B enterprise awards form part of the safety net and were adjusted as part of the Annual Wage Review 2009–10 decision. On the submissions advanced we do not see any justification for not increasing those minimum wages on this occasion.

[347] We deal next with minimum wages for employees to whom particular training arrangements apply under Division 2B State awards. These provisions, which apply to most apprentices and trainees in Queensland, are of two kinds. The first kind are competency-based wage arrangements derived from the Apprentices’ and Trainees’ Wages and Conditions (Excluding Certain Queensland Government Entities) 2003 Order (Qld) (the apprentices’ and trainees’ pay order). The second kind are provisions exclusively relating to tools for trainees and apprentices derived from Order – Supply of Tools to Apprentices 1998 (Qld). These provisions have come into the national system in two ways. First, they continued to apply to constitutional corporations in Queensland after the passage of the Workplace Relations Amendment (Work Choices) Act 2005 as APCSs and Notional Agreements Preserving State Awards (NAPSAs). These in turn became transitional instruments—transitional APCSs and NAPSAs respectively—under Schedule 3 to the Transitional Act on 1 July 2009. They continued to operate in relation to national system employers and their employees despite the commencement of modern awards on 1 January 2010. Although modern awards generally replace transitional instruments, under item 16 of Schedule 5 to the Transitional Act an exception was made in the case of these instruments. Secondly, the provisions were also incorporated into the Division 2B State awards which commenced to operate on 1 January 2010. When those awards terminated on 31 December 2010, the operation of the relevant provisions was preserved by item 36A of Schedule 3A to the Transitional Act.

[348] Provisions dealing with competency-based wage arrangements for apprentices and trainees in Queensland and provisions exclusively relating to tools for trainees and apprentices in Queensland cover constitutional corporation employers and their employees through the operation of award-based transitional instruments (namely NAPSAs) and their associated transitional APCSs, and cover other Queensland employers and their employees through Division 2B State awards. It follows that there is now a gap between the wages in the transitional APCSs and those in the Division 2B State awards and the gap will increase if we do not adjust wages in the Division 2B State awards as a consequence of this decision.

[349] The Queensland Government, supported by the Australian Government, and the ACTU submitted that we should correct the situation. The Queensland Government pointed out that the provisions for competency-based pay derived from the apprentices’ and trainees’ pay order operate by reference to percentages of wage rates for particular occupations in other Division 2B State awards. It submitted that the wages in those awards are set by reference to the level of the Queensland minimum wage immediately before 1 January 2010. That wage level is $1.70 lower than the national minimum wage. It submitted that we should also make an adjustment in that respect. The ACTU submitted that we could deal with the issue by providing that minimum wages for employees covered by the Division 2B State awards should be the same as those applying to employees covered by the transitional APCSs and award-based transitional instruments. CCIQ opposed the idea of parity in minimum wages for these two groups of employees on the grounds of cost and possible negative employment effects, although it conceded there is some benefit in both groups being on an equal footing.

[350] We think it is desirable to eliminate the differences between the two groups. There should be consistent safety net conditions for employers and employees in similar circumstances. Based on the submissions we estimate that few employers will be affected and the effect on employment is unlikely to be significant. It was not suggested that we do not have power to vary the relevant awards. We consider that the most effective way to deal with the issue is to vary the minimum wages in the relevant Division 2B State awards to reflect the minimum wages in the related transitional APCSs and we do so.

[351] We deal now with the position of employees participating in the Community Jobs Plan and Green Army programs in Queensland. There is an order of the Queensland Industrial Relations Commission covering employees in those schemes, known as the Order – Community Jobs Plan Employees’ Conditions, 2002 (CJP order). Like the provisions in relation to competency-based pay, these provisions have come into the national system in two ways. First, they continued to apply to constitutional corporations in Queensland after the passage of the Workplace Relations Amendment (Work Choices) Act 2005 as APCSs and NAPSAs. These instruments became transitional APCSs and NAPSAs under Schedule 3 to the Transitional Act on 1 July 2009 and continued to operate despite the commencement of modern awards on 1 January 2010. 121 Secondly, the provisions were also incorporated into the Division 2B State awards which commenced to operate on 1 January 2010. When those awards terminated on 31 December 2010, the operation of the relevant provisions was preserved by item 36B of Schedule 3A to the Transitional Act. Both sets of provisions, however, will terminate on 30 June 2012.122

[352] In the Annual Wage Review 2009–10 decision the Panel adjusted minimum wages in all transitional instruments and, as indicated above, we have decided to do so again this year. The Panel did not adjust minimum wages in Division 2B State awards last year. As a result the minimum wages for employees engaged on these employment schemes who are covered by the relevant transitional APCSs and award-based transitional instruments are higher than the minimum wages for the employees engaged on the schemes under Division 2B State awards. Both sets of provisions are derived from the CJP order.

[353] The Queensland Government submitted that we should adjust the minimum wages payable under the Division 2B State awards to ensure parity between the two groups and again pointed to the difference between the Queensland minimum wage and the national minimum wage. For reasons similar to those given in relation to the minimum wages in instruments derived from the apprentices’ and trainees’ pay order, we have decided to vary the relevant Division 2B State awards to reflect the minimum wages in the related transitional APCSs and we do so.

Conclusion

[354] Few parties specifically addressed the adjustment of transitional instruments and most of those which did submitted that the remaining transitional instruments should be varied consistently with the outcome of the review of modern award minimum wages. We have decided to vary minimum wages in all of the remaining transitional instruments, including enterprise instruments. We have also decided to vary minimum wages in Division 2B State enterprise awards. Minimum wages in Division 2B State awards relating to Queensland trainees, apprentices and employees subject to specific Queensland labour market programs will be varied to achieve parity with the relevant transitional APCSs.

12. Modern Award Minimum Wages for Junior Employees, Employees to Whom Training Arrangements Apply, Employees With Disability and Piece Rates

[355] In conducting an annual wage review the Panel is required to review minimum wages for junior employees, employees to whom training arrangements apply and employees with disability, and to review piece rates. 123

[356] In the Annual Wage Review 2009–10 decision, the Panel concluded that the increase decided upon should apply to all modern award minimum wages, stating that:

“The increase applies to minimum wages for junior employees, employees to whom training arrangements apply and employees with disability and to piece rates through the operation of the methods applying to the calculation of those wages.” 124

Junior employees

[357] Submissions which addressed minimum wages for junior employees generally supported the continuation of the approach adopted in last year’s review.

[358] Some parties also addressed the need for minimum wages for junior employees to be set in a way which maintains the competitiveness of junior employees in the labour market. The Australian Government submitted:

“[I]f junior employees are to be competitive in the labour market, their minimum wages should reflect the fact, that on average, they do not have the skills, experience and maturity of adults.” 125

[359] MGA submitted that if wages for junior employees are increased, it is essential that employers have the continued ability to employ junior employees. MGA and VACC submitted that there has been an increase in the employment of juniors since the Annual Wage Review 2009–10 to compensate for higher wage costs more generally.

[360] In light of the material and the submissions of the parties, it is appropriate to maintain the approach decided upon in last year’s review and to permit the increase we have decided on to flow through to junior rates through the operation of provisions for calculating junior rates in awards.

Employees to whom training arrangements apply

[361] A training arrangement is defined in s.12 of the Fair Work Act as “a combination of work and training that is subject to a training agreement, or a training contract, that takes effect under a law of a State or Territory relating to the training of employees”. It can be seen that the definition extends to apprentices and trainees.

[362] Most submissions supported a flow-on of any increase to the minimum wages of employees to whom training arrangements apply. Some parties made submissions about the importance of wage levels for the continued employment and retention of such employees. The ACTU argued that wages should be set at a level which encourages employees to undertake and remain in training. ACOSS submitted that the evidence suggests that higher wages are not a disincentive for employers, particularly for the employment of adult apprentices. It submitted that the percentage of apprentices who are 25 years or older has significantly increased since 1997.

[363] ACCI and CCIWA submitted that the level of award wages should be such as to maintain the competitiveness of employees to whom training arrangements apply in the labour market. 126 VACC presented survey findings that employers had increased the number of employees to whom training arrangements apply by 10 per cent since the Annual Wage Review 2009–10 decision.

Adjusting the National Training Wage Schedule

[364] Some submissions to this year’s review raised an issue regarding the compression of relativities in the National Training Wage Schedule (NTWS). The NTWS is a uniform schedule to 100 of the 122 modern awards. It provides for trainee rates and is based on the wage and classification structure which was contained in the National Training Wage Award 2000. 127

[365] While there is a reasonable level of acceptance that the wages for trainees covered by the NTWS should be adjusted to reflect our decision in the review, an issue has arisen concerning the method of adjustment. In implementing the Annual Wage Review 2009–10 decision, the classification structure in the NTWS was adjusted by whole dollar amounts. 128 This method of adjustment was consistent with the method adopted previously to adjust the National Training Wage Award 2000.129 ACCI and CCIWA submitted that the same approach should be followed this year. The ACTU and ABI, however, submitted that the historic method has led to a compression of relativities.

[366] The ACTU submitted that the three level rate structure has been so distorted by the historic method that the lowest of the three rates is likely to overtake the middle rate and that we should take action in this review to correct the problem. It submitted that it is not feasible to conduct a proper review of trainee rates as part of this review but that the adjustment mechanism should be modified. It proposed three possible ways of doing that.130

[367] While ABI agreed that there is a problem which requires attention, it submitted that if we decide on a flat dollar increase the historic method should not be departed from. In the event we decide on a percentage amount, the percentage could be applied to the rates, thus maintaining relativities.

[368] While a number of parties held out the prospect of some agreement being reached, at this stage that agreement has not materialised. In light of our decision to award a percentage increase our intention is to apply that percentage to all of the rates in the NTWS, thus maintaining the existing relativities. Should this give rise to unforseen problems they will be dealt with before the relevant determinations are made.

Review of modern award wage arrangements for juniors and employees to whom training arrangements apply

[369] The Australian Government and the ACTU submitted that they supported Fair Work Australia in conducting further research and review into trainee and apprentice wages. 131 In particular, the Australian Government supported a move towards an apprentice wage system linked to competency rather than time served and indicated that it intended to pursue that agenda through the Council of Australian Governments and consultation with stakeholders. In this context it referred to the 31 January 2011 final report of the Expert Panel established in 2010 and the Australian Government’s intended response to the report expected later in 2011. While it favours a competency-based approach to trainee and apprentice provisions, the Australian Government indicated that as an interim measure and pending a possible review, we might prefer to maintain a model consistent with the most common wage structures in modern awards.

[370] Some parties expressed opposition to the proposal that minimum wages for trainees and apprentices should be based on competency rather than the traditional time-based formulas. ACCI expressed reservations about the utility of a review at this stage and submitted that changes in the training agenda should not be driven by Fair Work Australia, which nevertheless has an important role to play in ensuring that award provisions are appropriate to the relevant training arrangements. Ai Group submitted that any review of wages and conditions for junior employees and employees subject to training arrangements should be carried out in conjunction with the review of modern awards, which must be conducted as soon as practicable after 1 January 2012.

[371] We have not drawn any conclusions on the desirability of competency-based wage structures for apprentices and trainees but we would be reluctant to make alterations in the existing award structures on the material available to us, even assuming we had the power to do so. In relation to the question of a general review of conditions for juniors and employees subject to training arrangements, the President will convene a further conference of interested persons and bodies when the Australian Government’s response to the final report of the Expert Panel becomes available. We also point out that there may be other provisions of the Fair Work Act which are available to pursue the question of modern award arrangements for juniors and trainees.

Employees with disability

[372] In s.12 of the Fair Work Act an employee with a disability is defined as “a national system employee who is qualified for a disability support pension as set out in section 94 or 95 of the Social Security Act 1991, or who would be so qualified but for paragraph 94(1)(e) or 95(1)(c) of that Act”.

[373] Most parties supported the flow-on of any wage increase to employees with disability through the Supported Wage System Schedule (SWSS) and the adjustment of the minimum payment. The minimum payment is set at the weekly equivalent of the per fortnight income test free threshold for the Disability Support Pension and is adjusted annually to reflect changes in the threshold.

[374] ACOSS, however, raised issues with the current system of wages for employees with disability, stating that the system is complex and difficult to understand and that the current rate of pay for employees with disability whose productivity is affected is far too low. ACOSS further submitted that it was important not to reinforce the notion that wages for employees with disability are supplements to their main income, which is the pension.

[375] We have decided that the adjustment will flow through to employees with disability through the operation of the SWSS and that the minimum payment in the SWSS should be adjusted in accordance with past practice.

Piece rates

[376] Piece rates in modern awards are fixed by reference to minimum weekly or hourly wages in those awards. In the normal course, adjustments in minimum wages will automatically flow through to employees engaged on piece work. There were no proposals to alter these arrangements. We think it is appropriate that employees engaged on piece work should receive the benefit of the increase we have decided on.

Conclusion

[377] The increase in minimum wage rate resulting from the review will flow through to the minimum wages of junior employees, employees to whom training arrangements apply, employees with disability and to piece rates. The minimum payment in the SWSS will be adjusted in accordance with past practice.

13. Casual Loadings under Modern Awards and the Casual Loading for Award/Agreement Free Employees

[378] In each annual wage review the Panel is required to review casual loadings in modern awards and to include a casual loading for award/agreement free employees in the national minimum wage order. The casual loading for award/agreement free employees must be expressed as a percentage.132

[379] In the Annual Wage Review 2009–10 decision the Panel decided to maintain the standard casual loading in modern awards at 25 per cent (subject to relevant transitional provisions). That loading was set by a Full Bench of the AIRC during the award modernisation process.133 No party sought an increase in the standard casual loading and only one party sought a reduction. R&CA sought a reduction in modern award casual loadings for small and medium sized enterprises only.

[380] In the Annual Wage Review 2009–10 decision the Panel expressed the view that the casual loading for award/agreement free employees should be the same as the standard casual loading in modern awards—25 per cent. At that time the transitional default casual loading for award/agreement free employees was 20 per cent. The Panel decided to increase the amount in instalments, consistent with the transitional arrangements in modern awards, and set the loading at 21 per cent. There were few submissions but a general acceptance that, consistent with the approach adopted in last year’s review, a loading of 22 per cent might be adopted. CCIWA, however, opposed any increase on the grounds of cost and employment effects.

Conclusion

[381] We have decided not to make any alteration to the standard casual loading in modern awards and to increase the casual loading for award/agreement free employees to 22 per cent.

14. Special National Minimum Wages

[382] Section 284 of the Fair Work Act requires Fair Work Australia to establish and maintain a safety net of fair minimum wages taking into account a number of factors including providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with disability. Section 294 requires the Panel to include in the national minimum wage order special national minimum wages for award/agreement free employees in the following classes:

Special national minimum wages for award/agreement free employees with disability

[383] In the Annual Wage Review 2009–10 decision, the Panel decided that the National Minimum Wage Order 2010 would make provision for two kinds of special national minimum wage for award/agreement free employees with disability. The first provides for a minimum wage of $569.90 per week, or $15 per hour, based on a 38 hour week—the minimum wage—for employees whose productivity is not affected. The second provides for a wage calculated by reference to an assessment under the supported wage system for employees whose productivity is affected. In relation to the second group, there is a requirement for a minimum payment at the same level as that applying in the supported wage system, based on the weekly equivalent of the per fortnight income test free threshold for the Disability Support Pension.

[384] Most parties who addressed the issue supported a continuation of last year’s approach, although ACOSS again questioned the need for separate provision to be made for employees with disability whose productivity is not affected and also submitted that the minimum payment for employees whose productivity is affected should be set at a higher level.

Conclusion

[385] We have decided to maintain the approach adopted in last year’s review. The minimum wage for employees with disability whose productivity is not affected will be set at the level of the national minimum wage. Employees with disability whose productivity is affected will be paid in accordance with an assessment under the supported wage system subject to the minimum payment fixed under the SWSS.

Special national minimum wages for award/agreement free junior employees

[386] Pursuant to provisions in the Transitional Act,134 in last year’s annual wage review the Panel decided not to fix rates for award/agreement free junior employees and employees to whom training arrangements apply.135 This year’s decision will therefore be the first time special national minimum wages have been included in the national minimum wage order for these employees.136

[387] Most parties pointed to the difficulty in ascertaining who would be covered by the order, although there was general agreement that coverage is likely to be very limited. In relation to junior employees the Australian Government submitted that:

“[I]t is unclear to what extent junior employees are actually employed in award/agreement free industries or occupations. For example, while it would appear that a tattoo artist is an award/agreement free occupation (because no applicable modern award applies to this occupation) there is no data available that indicates how many tattoo artists are in fact junior employees. Additionally, while lawyers are award/agreement free occupations it would be very unlikely for a junior employee to be employed in this occupation due to the time necessary to complete university studies and other professional entry requirements in order to enter the profession, following the completion of high school studies.”137

[388] ABI pointed out that some junior employees identified as potentially being award/agreement free by the Australian Government may instead be covered by the Miscellaneous Award 2010. 138 It submitted:

“Juniors employed by an employer for whom there is no industry modern award (or whose employer’s activities are excluded from coverage of an industry award) may, if there is no occupational modern award, fall within the coverage of the Miscellaneous Award. Juniors whose employer is covered by an industry modern award but whose work is covered by neither its classifications nor an occupational modern award will not be covered by the Miscellaneous Award. They will be award/agreement free and covered by the forthcoming Special NMW.”139

[389] Different proposals were advanced as to what the minimum wage for juniors should be. The ACTU proposed that we should adopt a single rate of pay for award/agreement free juniors under the age of 18, equivalent to 75 per cent of the national minimum wage. The ACTU noted this rate is higher than the junior rates contained in a number of awards, including the Miscellaneous Award 2010, but argued award free employees do not receive entitlements such as penalty rates applicable to award covered junior workers. The ACTU further submitted that junior employees aged 18 and over should receive the national minimum wage.

[390] ABI disagreed with the ACTU’s proposal that award/agreement free juniors should receive the national minimum wage when they turn 18 and submitted:

“Junior employees have significantly higher levels of unemployment than the workforce generally. For junior employees the first challenge for improving their social inclusion is not so much to encourage them into the labour market as to get them into jobs.”140

[391] ACCI, CCIWA and the Australian Government recommended we adopt the junior wage percentage scale in the General Retail Industry Award 2010 for award/agreement free junior employees, applied to the national minimum wage. ACCI submitted that the scale applying in the retail industry is appropriate because the majority of award regulated juniors are employed in the retail industry.

[392] The Australian Government submitted that although the age scale in the Miscellaneous Award 2010 is relevant to consider (as it contains a junior rates scale with age gradation), the General Retail Industry Award 2010 may be preferable as it includes non-whole number percentages and its wage scale is consistent with the age gradations in other awards.

[393] Ai Group submitted that the rates should not be set higher than the junior rates in any modern award. It proposed the rates and relativities for juniors in the Graphic Arts, Printing and Publishing Award 2010 141 should be applied to the national minimum wage.

[394] ABI and Business SA proposed that the percentage scale for juniors in the Miscellaneous Award 2010 should be adopted. ABI further submitted that providing the same percentages for juniors covered by the special national minimum wage and the Miscellaneous Award 2010 would help reduce complexity and promote community understanding of a fair minimum for junior employees not covered by the mainstream industry/occupational system.

[395] In response to models which attached junior percentage scales to the national minimum wage, the ACTU opposed each of these proposals, submitting that the resulting rates would be too low and that its approach ensured that juniors would have an appropriate safety net.

Conclusion

[396] We have decided to adopt the junior wage percentage scale in the Miscellaneous Award 2010 as the special national minimum wage for award/agreement free junior employees. Given the nature of the minimum wage order, there is no reason to use a wage other than the national minimum wage as the base upon which the percentages should be calculated.

15. Special National Minimum Wages for Award/Agreement Free Employees to Whom Training Arrangements Apply

[397] We deal now with special national minimum wages for employees to whom training arrangements apply. Employees to whom training arrangements apply include apprentices and trainees. As outlined earlier, this will be the first time that the national minimum wage order will include special national minimum wages for these employees.

[398] The major parties agreed that special national minimum wages for employees to whom training arrangements apply will have little to no application in practice because of the scope and coverage of modern awards.

[399] The ACTU proposed that the special national minimum wage for both apprentices and trainees should be the same as the national minimum wage. It submitted that:

“The ACTU does not support the development of a multi-level structure of rates for award-free employees. Traineeships and apprenticeships are comprehensively covered by modern awards. Incorporating a structure of apprentice and trainee rates into the NMW order is likely to cause confusion and may result in employees being underpaid. Our model provides an incentive for businesses to identify the applicable modern award and is therefore preferable.”142

[400] Wages for apprentices and trainees have been (historically and presently) treated separately in wage setting instruments. The Australian Government submitted that apprentices and trainees have historically been treated differently on the basis of the arrangements in the relevant award.

Apprentices

[401] There were a number of proposals in relation to apprentices. The Australian Government pointed out that because of differences in modern award provisions there is no readily identifiable common provision. It submitted:

“In contrast to the arrangements for trainees, modern awards do not include a common schedule or a standardised set of provisions for apprentices. As such, there is no default set of wages that the Panel could adopt to set minimum wages for award/agreement free apprentices. Rather, the safety net of minimum wages for apprentices varies considerably across modern awards.”143

[402] While expressing a strong preference for a competency-based approach to apprentice progression, it indicated that because most modern awards link progression to years of service, it would not oppose an arrangement of that kind as an interim measure.

[403] As we have noted above, the ACTU submitted that we should adopt the national minimum wage as the special national minimum wage for apprentices as well as trainees. The South Australian Government, ACCI, ABI, CCIWA and Business SA, among others, proposed the adoption of the wage rates and percentages in the Miscellaneous Award 2010 as the basis for the special national minimum wage for apprentices, including the adoption of the C10 rate as the basis for the application of the percentages. Group Training Australia submitted that if the industry in which the employee works cannot be identified, the Miscellaneous Award 2010 should be applied. Ai Group submitted that rates of pay in the Manufacturing Award should be adopted as the special national minimum wage for apprentices. There were also some proposals that the special national minimum wage for apprentices should also include rates for specific types of apprentices.

[404] Some parties addressed the position of school-based apprentices. Ai Group, ACCI and Group Training Australia submitted that we should include in the special national minimum wage for apprentices, rates for school-based apprentices based on the school-based apprentice schedule attached to some modern awards. The standard schedule for school-based apprentices provides that apprentices who are also undertaking secondary education are entitled to the relevant apprentice award rate, including hours deemed to be off-the-job-training, as well as pro rata award entitlements.

[405] There were few submissions about adult apprentices. Group Training Australia supported the inclusion of an adult apprentice rate set at the national minimum wage. The Australian Government also supported provision being made for adult apprentices, noting that over 42 per cent of all Australian apprentices and trainees are now aged 25 years and over. Ai Group submitted that the relevant provisions of the Manufacturing Award should be adopted, which provide for a commencement wage just below the national minimum wage. No party suggested that there is a need for part-time apprentice provisions.

Trainees

[406] Apart from the ACTU, which proposed that the minimum wage for trainees should be the national minimum wage, most parties submitted that we should set the special national minimum wage rate for trainees with reference to the National Training Wage Schedule attached to most modern awards. Although the Australian Government supported the latter approach, it submitted that we should adopt Wage Level B only.

[407] ABI and the South Australian Government supported the use of the Miscellaneous Award 2010 for these wages. ABI noted that clause 14.7 and Schedule E of the Miscellaneous Award 2010 replicate the standard training wage provisions and could be used as a model for the special national minimum wage for award/agreement free trainees.

Conclusion

[408] We have decided to adopt the provisions of the Miscellaneous Award 2010 as the basis for the special national minimum wages for award/agreement free employees to whom training arrangements apply. The apprentice provisions in that award and the provisions of the NTWS will be incorporated by reference into the national minimum wage order. The order will also provide that adult apprentices should not receive less than the national minimum wage.

16. Summary

[409] It is appropriate to summarise the outcome of the review and mention some matters relevant to the future.

[410] The outcome of the review in relation to modern award minimum wages is that from the first full pay period on or after 1 July 2011 minimum weekly wages are increased by 3.4 per cent, with commensurate increases in hourly rates on the basis of a 38 hour week. The increase applies to minimum wages for junior employees, employees to whom training arrangements apply and employees with disability, and to piece rates through the operation of the methods applying to the calculation of those wages. Wages in the NTWS will be adjusted by 3.4 per cent.

[411] The determinations necessary to give effect to the increase in modern awards will be made available in draft form shortly after this decision. Determinations varying the modern awards will be made as soon as practicable and the modern awards including the varied wage rates will be published as required by the Fair Work Act.

[412] In relation to transitional instruments, from the first full pay period on or after 1 July 2011 wages in those instruments, including Division 2B State enterprise awards, will be varied by 3.4 per cent per week, with commensurate increases in hourly rates based on a 38 hour week. Wages in Division 2B State awards relating to Queensland trainees, apprentices and employees subject to specific Queensland labour market programs will be varied to achieve parity with minimum wages in the corresponding transitional APCSs and State reference transitional awards.

[413] The national minimum wage order will contain:

[414] We intend to give consideration to the research program for the Annual Wage Review 2011–12 as soon as practicable. We invite interested parties to lodge research proposals by 31 July 2011. We note that research has already been programmed into the effects of minimum wage increases on gender pay equity. The parameters of that research may require reconsideration in light of our decision in this review. Sometime after 31 July the President will convene a public conference with the Panel to discuss the proposals. The research program will not necessarily be restricted to the parties’ proposals.

[415] The timetable for the Annual Wage Review 2011–12 will be announced in the last quarter of 2011.

[416] We wish to express our appreciation to the parties who participated in the review for their contributions and to the staff of Fair Work Australia for their assistance.

 

PRESIDENT

 

 1   www.fwa.gov.au.

 2   Fair Work Act 2009, s.286.

 3   ibid., s.287.

 4   ibid., s.292.

 5   ibid., s.289.

 6   ibid., s.291.

 7   ibid., s.284(3).

 8   [2010] FWAFB 4000, 3 June 2010.

 9   See item 4 of Sch. 9 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Transitional Act).

 10   Items 10 and 20 of Sch. 9 and items 12A(5) and (6) of Sch. 3.

 11   [2010] FWAFB 4000 at para 14.

 12   Items 10(2) and 20(2) of Sch. 9 and item 12A(6) of Sch. 3.

 13   ibid., item 21 of Sch. 3A.

 14   ibid., item 16 of Sch. 9.

 15   Fair Work Act, s.286.

 16   ibid., s.287.

 17   MA000010.

 18   MA000003.

 19   MA000004.

20 Australian Government submission, p. 8 at para. 8.

21 ACCI submission, p. 46 at para. 214.

22 Ai Group submission, p. 9 at para. 25.

23 ACCI submission, p. 49 at para. 231.

24 Gruen D, 2011, Economic and Financial Trends and Globalisation over the next 15 years and how they will influence the supply and demand for skills, Presentation to Skills Australia/ASSA Scenario Development Forum, 7 February 2011, p. 1.

25 Gruen D, The Resources Boom and Structural Change in the Australian Economy, 24 February 2011, p. 1.

26 ANRA submission, p. 8 at para. 3.6.

27 Productivity Commission, Submission to the House of Representatives Standing Committee on Economics Inquiry into Raising the Productivity Growth Rate in the Australian Economy, September 2009, p. 26.

28 ACCI submission, pp. 118–9 at para. 403.

29 Fair Work Australia, An overview of productivity, business competitiveness and viability, Research Report 1/2011, January 2011, p. 79.

30 ibid.

31 ACCI submission, p. 92 at para. 353.

32 ACOSS submission, p. 30.

33 ibid., p. 31.

34 ACCI submission, p. 104 at para. 376.

35 ACTU submission in reply. This measure is the sum of job vacancies in the Clerical and administrative; Technicians and trades; Community and personal services; Labourers; and Sales workers occupational groups.

36 Business SA submission, p. 15 at para. 7.3.3.5.

 37   MA000009.

38 ACCI submission, p. 108 at para. 385.

39 ibid., p. 109 at para. 386.

 40   Victorian Government submission, p. 4 at para. 7.

41 ACCI submission, p. 43 at para. 216.

42 ACTU submission, p. 97 at para. 8.10; Reserve Bank of Australia, Minutes of the Monetary Policy Meeting of the Reserve Bank Board, 1 March 2011, <http://www.rba.gov.au/monetary-policy/rba-board-minutes/2011/01032011.html>.

43 Australian Government submission, p. 11 at para. 30.

 44   Australian Bureau of Statistics, Catalogue No. 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec 2010, Analysis and Comment.

 45   Department of Employment, Education and Workplace Relations, Trends in Federal Enterprise Bargaining, September quarter 2010, <http://www.deewr.gov.au/workplacerelations/pages/reports.aspx>.

 46   Average annual employment growth figures are calculated by taking the average of the annual changes through to the February quarter of each year over the period.

 47   Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2011–12, Canberra, 2011, p. 2-11.

 48   ibid., p. 2-3.

 49   ibid., pp. 2-15 and 2-17.

 50   ibid., pp. 2-17–18.

 51   ibid., p. 2-3.

 52   ibid., p. 2-16.

 53   Reserve Bank of Australia, Statement on Monetary Policy, May 2011, p. 62.

54 [2010] FWAFB 4000 at para. 237.

55 Fair Work Australia, Relative living standards and needs of low-paid employees: definition and measurement, Research Report 2/2011, January 2011, pp. 95–7.

56 ibid., p. 54.

57 ACCER submission, p. 41 at para. 115.

58 [2010] FWAFB 4000 at para. 239.

59 ibid., at para. 242.

60 Richardson S and Miller-Lewis L 2002, ‘Low wage jobs and pathways to better outcomes’, New Zealand Treasury Working Paper 02/29; Gaston N and Rajaguru G 2009, ‘The Long-run Determinants of Australian Income Inequality’, Economic Record, September 2009, vol. 85, issue 270, pp. 239–370.

61 Leigh A 2007, ‘Does raising minimum wage help the poor?’, Economic Record, December 2007, vol. 83, no. 263, pp. 432–45; Wooden M, Wilkins R and McGuinness S 2007, ‘Minimum wages and the working poor’, Economic Papers, December 2007, vol. 26, no. 4, pp. 295–307; Burkhauser R and Sabia J 2008, ‘Do minimum wage increases reduce poverty? An American perspective’, in Australian Fair Pay Commission, 2008 Minimum Wage Research Forum, Volume 2, October 2008, pp. 165–81.

62 [2010] FWAFB 4000 at para 243.

63 Fair Work Australia, Relative living standards and needs of low-paid employees: definition and measurement, Research Report 2/2011, January 2011, p. iii.

64 ibid., p. i.

65 Fair Work Act, s.284(1)(b).

66 ibid., s.134(1)(c).

67 [2010] FWAFB 4000 at para. 245.

68 ibid., at para. 275.

69 Australian Government submission, p. 35 at para. 3; ACTU submission, pp. 105–6 at paras 9.4–9.6; ACCER submission, p. 14 at para. 25.

70 Australian Government submission, p. 41 at para. 27.

71 ACTU submission, p. 107 at para. 9.14; Leach L, Butterworth P, Strazdins L, Rodgers B, Broom DH, and Olesen SC, ‘The limitations of employment as a tool of social inclusion’, BMC Public Health, vol. 10, no. 621, 2010, viewed 18 April 2011, <http://www.biomedcentral.com/content/pdf/1471-2458-10-621.pdf>.

72 Australian Social Inclusion Board submission, p. 1.

73 [2010] FWAFB 4000 at para. 276.

 74   Buddelmeyer, H. & Kalb, G., ‘The effect of minimum wage changes on labour supply and income distribution’, 2008 Minimum Wage Research Forum, Volume 2, October 2008, Australian Fair Pay Commission, pp. 222–6.

75 Effective marginal tax rates refer to the percentage of an increase in earnings lost to income tax and income tests on government payments.

76 Ai Group submission, p. 21 at para. 57; ABS, Labour Force, Australia, Mar 2011, Catalogue No. 6202.0, ABS, Canberra, 2011.

77 [2010] FWAFB 4000 at para. 246.

78 ACCI submission, p. 168 at para. 514.

 79  Dube, A., Lester, T.W. and Reich, M, 2010, ‘Minimum wage effects across state borders: Estimates using contiguous counties’, The Review of Economics and Statistics, November 2010, vol. 92, no. 4, pp. 945-64.

 80   ibid., at 961.

81 Dolton P, Rosazza-Bondibene C and Wadsworth J, ‘Employment, Inequality and the UK National Minimum Wage over the Medium-Term’, Discussion Paper No. 5278, IZA Institute for the Study of Labor, October 2010.

82 Australian Government submission, p. 30 at para. 48.

83 [2010] FWAFB 4000 at paras 275–6.

84 “Low-paid” is defined here as a person earning an hourly wage between the minimum wage and two-thirds of median wage.

85 Australian Government submission, p. 45 at paras 43–5; Buddelmeyer H, Lee W-S, Wooden M, and Vu H, (2007), Low Pay Dynamics: Do Low-Paid Jobs Lead to Increased Earnings and Lower Welfare Dependency Over Time, Melbourne Institute of Applied Economics and Social Research.

86 ACTU submission, pp. 70–1 at paras 6.31–32; ABS, Labour Force, Australia, Dec 2010, Catalogue No. 6202.0, ABS, Canberra, 2011.

 87   ACCI submission, p. 132 at para. 441.

 88   VACC submission, p. 16.

 89   op. cit., Dolton et. al., p. 20; op. cit., Dube et. al.

 90   Fair Work Act, s.134(1)(b).

91 Australian Government submission, p. 4 at paras 24–6.

92 ACTU submission, p. 23 at para. 3.51.

93 Queensland Government submission, p. 12 at para. 37.

94 ACCI submission in reply, p. 5 at para. 27.

 95   [2010] FWAFB 4000 at para. 302.

 96   Fair Work Act, s.284(1)(d) and s. 134 (1)(e).

 97   [2010] FWAFB 4000 at para. 319.

 98   ACTU submission, p. 164 at para. 12.19.

 99   Australian Government submission, p. 2 at para. 9.

 100   Ai Group submission, p. 42 at para. 126.

 101   Fair Work Australia, matter no. C2010/3131.

 102   ACCI submission, p. 26 at para. 127.

 103   Fair Work Australia, Review of equal remuneration principles, Research Report 5/2011, February 2011, p. 60.

 104   ACTU submission, p. 159 at para. 12.20.

 105   Ai Group submission, p. 38 at para. 122.

 106   ibid., p. 38 at para 117.

 107   ACTU submission in reply, p. 52 at paras 8.4–5.

 108   See Chart 4.1 in Chapter 4 above.

109 ACTU submission, pp. 192–4 at para. 16.6.

110 ABI submission in reply, p. 3.

111 Ai Group submission, pp. 26–7 at para. 77; Queensland Rural Adjustment Authority (2011), Queensland Government viewed on 28 March 2011, <http://www.qraa.qld.gov.au/index.php?option=com_qraa&view=detail&id=227 &Itemid=89>.

 112   op. cit., Reserve Bank of Australia, p. 41.

 113   [2010] FWAFB 4000 at paras 344 to 347.

114 ibid., at para 370.

115 ibid., at paras 370–96.

116 ABI submission, p. 35.

117 [2010] FWAFB 991, 6 December 2010.

118 ABI submission, p. 35.

119 ACTU submission in reply, p. 58 at paras 10.6–7.

120 [2010] FWAFB 8558.

 121   See Transitional Act, item 44 of Sch. 3.

122 See Transitional Act, items 36B(7) of Sch. 3A and 44(7) of Sch. 3.

 123   Fair Work Act, s.284(3).

 124   [2010] FWAFB 4000 at para. 424.

 125   Australian Government submission, p. 80 at para. 66.

 126   ACCI submission, p. 26 at para. 129; CCIWA submission, p. 67.

 127   AP790899.

 128   [2010] FWAFB 4000 at para 355.

 129   For a description of this method see AIRC transcript of proceedings to Application by the Shop, Distributive and Allied Employees Association to vary the National Training Wage Award 2000, (C2003/2533), 2 July 2003, paras 14–8. An extract of this transcript is provided in Fair Work Australia, Australian apprentice minimum wages in the national system. Research Report 6/2011, February 2011, p. 314.

130 ACTU submission, p. 174 at paras 13.44–45.

 131   ibid., p. 183 at para. 13.83.

132 Fair Work Act, s.295(1)(b).

133 [2008] AIRCFB 1000 at paras 47–50.

134 Transitional Act, item 4 of sch. 9.

135 [2010] FWAFB 4000, at para. 406.

136 Fair Work Act, s.294(1)(b)(i) and (ii).

137 Australian Government submission, p. 73 at para. 27.

 138   MA000104.

139 ABI submission in reply, pp. 14–5.

140 ibid., p. 14.

 141   MA000026.

142 ACTU submission in reply, pp. 54–5 at para. 9.6.

143 Australian Government submission, p. 85 at para. 23.




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