AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
SAFETY NET REVIEW
- WAGES
April 1997
PRESIDENT O'CONNOR
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT HANCOCK
SENIOR DEPUTY PRESIDENT MACBEAN
COMMISSIONER OLDMEADOW
COMMISSIONER McDONALD
Page
LIST OF ABBREVIATIONS vii
CHAPTER 1 - INTRODUCTION AND THE ACTU'S LIVING WAGE CLAIM 4
CHAPTER 2 - THE ACTU WAGE CLAIM AND OTHER CLAIMS FOR DECISION 5
CHAPTER 3 - THE PROCEEDINGS 10
CHAPTER 4 - OUTLINE OF RESPONSES TO THE ACTU WAGE CLAIM 11
4.1 Introduction 11
4.2 Responses 12
4.2.1 Employer Associations 12
4.2.2 Governments 14
4.2.3 Others 14
CHAPTER 5 - THE LEGAL FRAMEWORK 15
5.1 Introduction 15
5.2 The Principal Object of the Act 16
5.3 Objects of Part VI - Dispute Prevention and Settlement 16
5.4 Performance of the Commission's Functions 17
5.5 Workplace Agreements 17
5.6 The Meaning of "Safety Net" 18
CHAPTER 6 - THE ECONOMIC FRAMEWORK 21
6.1 Introduction 21
6.2 Cost 22
6.3 The Effect of Wage Increases on Employment 27
6.4 Wages, Prices and Productivity: Competing Perspectives 30
6.5 Economic Indicators and Constraints 32
6.5.1 Employment and Unemployment 32
6.5.2 Wages and Inflation 34
6.5.3 Productivity 37
6.5.4 Profits 39
6.5.5 Investment 42
6.5.6 Economic Activity 44
6.6 Sectoral Effects 45
6.7 Conclusion 49
CHAPTER 7 - THE NEEDS OF THE LOW PAID 50
7.1 Introduction 50
7.2 Historical Context 51
7.3 Needs and Low Pay 52
7.4 The Needs of Low Paid Women Workers 56
7.5 How Can We Best Take Account of the Needs of the Low Paid? 57
7.6 Conclusions 65
Page
CHAPTER 8 - THE DECISION ON THE ACTU WAGE CLAIM 68
8.1 The Decision 68
8.2 Reasons for Decision 69
8.2.1 Introduction 69
8.2.2 The Present Wages System 69
8.2.3 The $10 Per Week Arbitrated Safety Net Adjustment 71
8.2.4 The Federal Minimum Wage 76
8.2.5 Absorption 78
8.2.6 Paid Rates Awards 79
8.2.7 Outstanding $8 Per Week Arbitrated Safety Net Increases 82
8.2.8 Phasing-in 82
8.2.9 Hourly Rates 83
8.2.10 Duration and Adjournment 83
CHAPTER 9 - THE CFMEU WAGE CLAIM 83
9.1 Introduction 83
9.2 The CFMEU's Submissions 84
9.3 Employer Submissions 87
9.4 Conclusion 89
CHAPTER 10 - CLAIMS THAT COMMISSION SHOULD MAKE A STATEMENT RELATING TO DISCRIMINATION AGAINST PART-TIME EMPLOYEES 90
CHAPTER 11 - CHANGES TO THE STATEMENT OF PRINCIPLES 91
Page
ATTACHMENT A - STATEMENT OF PRINCIPLES 93
1. Introduction 93
2. Agreement Making 94
3. Role of Arbitration and the Award Safety Net 94
3.1 Award Safety Net 94
3.2 When an Award May be Varied or Another Award Made Without the Claim Being Regarded as Above or Below the Safety Net 95
3.2.1 Previous National Wage Case Increases 95
3.2.2 Test Case Standards 96
3.2.3 Adjustment of Allowances and Service Increments 97
3.2.4 Work Value Changes 98
3.2.5 Standard Hours 99
3.2.6 Arbitrated Safety Net Adjustments 99
3.2.7 Federal Minimum Wage 101
3.3 Making and Varying an Award Above or Below the Safety Net 103
3.4 First Award and Extension to an Existing Award 103
3.5 Economic Incapacity 104
4. Duration 104
ATTACHMENT B - ACTU OUTLINE OF CLAIM 105
ATTACHMENT C - STATEMENT OF 7 AUGUST 1996 109
ATTACHMENT D - STATEMENT OF 2 OCTOBER 1996 113
ATTACHMENT E - LIST OF THOSE WHO MADE PUBLIC SUBMISSIONS 119
ATTACHMENT F - COST OF THE ACTU WAGE CLAIM 121
1. Direct Costs 121
1.1 ACTU Estimates 121
1.2 Joint Government Estimates 123
1.3 Reserve Bank Estimate 126
1.4 ACCI Estimates 126
1.5 The NFF Estimate 128
2. Indirect Effects 129
ATTACHMENT G - THE EFFECT OF WAGE INCREASES ON EMPLOYMENT 137
1. ACTU Contentions 137
2. Submissions of ACCI 138
3. Joint Government Arguments 140
4. Estimate Provided by the NFF 144
5. Submissions of ACOSS and the Brotherhood of St. Laurence 144
6. Other Material 146
ATTACHMENT H - WAGES, PRICES AND PRODUCTIVITY 151
1. The ACTU and Productivity 151
2. ACCI's Contentions 155
3. Real Unit Labour Costs 158
4. Comments 162
In this decision we use the following abbreviations:
AAWI: Average annualised wage increase
ABS: Australian Bureau of Statistics
ACCI: Australian Chamber of Commerce and Industry
ACM: Australian Chamber of Manufactures
ACOSS: Australian Council of Social Services
Act: Workplace Relations Act 1996 (as it now is) (also referred to as the new Act)
ACTU: Australian Council of Trade Unions
ACTU wage claim: See Chapter 2
ALHMWU: Australian Liquor, Hospitality and Miscellaneous Workers Union
AMWU: Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union
AP&SF: Australian Pensioners' and Superannuants' Federation
ASU: Australian Municipal, Administrative, Clerical and Services Union
August 1989 decision: National Wage Case decision, 7 August 1989 [Print H9100]
August 1994 decision: Review of Wage Fixing Principles decision, 26 August 1994 [Print L4700]
AWOTE: Average Weekly Ordinary Time Earnings
AYPAC: Australian Youth Policy and Action Coalition
BCA: Business Council of Australia
CFMEU: Construction, Forestry, Mining and Energy Union
CFMEU wage claim: See Chapter 2
CPI: Consumer Price Index
EEASA: Engineering Employers Association, South Australia
EEH: ABS Survey of Employee Earnings and Hours
GDP: Gross Domestic Product
GDP(A): Gross Domestic Product - Average of 3 methods
GDP(E): Gross Domestic Product - Expenditure
GDP(I): Gross Domestic Product - Income
GDP(P): Gross Domestic Product - Productivity
GNFP: Gross non-farm product
Harvester decision: Ex parte H.V. McKay [(1907) 2 CAR 1]
HPL: Henderson Poverty Line
HREOC: Human Rights and Equal Opportunity Commission
Joint Employers: MTIA, ACM, EEASA and MP&MSA
Joint Governments: The Commonwealth, State of Queensland, State of South Australia, State of Tasmania, State of Victoria, State of Western Australia, the Australian Capital Territory and the Northern Territory
MBA: Master Builders Australia
MCE Act: Minimum Conditions of Employment Act 1993 (Western Australia)
Metal Industry Award: Metal Industry Award 1984 - Part I
MP&MSA: Master Plumbers and Mechanical Services Association of Australia
MTA-NSW: Motor Traders' Association of New South Wales
MTA-SA: Motor Trade Association of South Australia
MTFU: Metal Trades Federation of Unions
MTIA: Metal Trades Industry Association of Australia
new Act: Workplace Relations Act 1996 (as it now is) (also referred to as the Act)
New South Wales: State of New South Wales
NFF: National Farmers' Federation
NUW: National Union of Workers
October 1993 decision: Review of Wage Fixing Principles decision, 25 October 1993 [Print K9700]
October 1995 decision: Third Safety Net Adjustment & Section 150A Review decision, 9 October 1995 [Print M5600]
OECD: Organisation for Economic Cooperation and Development
Percentage adjustments
claim: See Chapter 2
previous Act: the Industrial Relations Act 1988, and the Workplace Relations Act 1996 as it was immediately prior to 31 December 1996
RULC: Real Unit Labour Cost
SDA: Shop, Distributive and Allied Employees Association
September 1994
decision: Safety Net Adjustments and Review decision, 21 September 1994 [Print L5300]
TACC: Tasmanian Automobile Chamber of Commerce
TCFUA: Textile, Clothing and Footwear Union of Australia
$20 claim: See Chapter 2
Unions: the AMWU, ALHMWU, ASU, NUW, SDA and TCFUA
VACC: Victorian Automobile Chamber of Commerce
WAIRC: Western Australian Industrial Relations Commission
WEL: Women's Electoral Lobby
Western Australia: State of Western Australia
WROLA Act: Workplace Relations and Other Legislation Amendment Act 1996
Dec 335/97 S Print P1997
AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
Workplace Relations Act 1996
s.113 applications for variation
s.108 reference to Full Bench
(ODN C No. 02568 of 1984)
[Print F8925 [M0039]]
(C No. 22275 of 1996)
(ODN C No. 01522 of 1979)
[Print F0813 [V0005]]
(C No. 33900 of 1996)
(ODN C No. 01339 of 1974)
[Print H5658 [V0019]]
(C No. 33901 of 1996)
(ODN C No. 02782 of 1986)
[Print M7207 [H0008]]
(C No. 22277 of 1996)
(ODN C No. 21626 of 1992)
[Print L3622 [L0125]]
(C No. 22278 of 1996)
(ODN C No. 22427 of 1991)
[Print K3165 [T0002]]
(C No. 22279 of 1996)
(ODN C No. 03697 of 1985)
[Print M0876 [C0173CRA]]
(C No. 22280 of 1996)
(ODN C No. 00696 of 1980)
[Print G0207 [C0037CRA]]
(C No. 33902 of 1996)
(ODN C No. 34749 of 1995)
[Print M8184 [C1128]]
(C No. 33908 of 1996)
(ODN C No. 30030 of 1993)
[Print M3948 [R0017CRA]]
(C No. 33922 of 1996)
(ODN C No. 31107 of 1993)
[Print L8307 [C0716]]
(C No. 33931 of 1996)
(ODN C No. 32518 of 1992)
[Print N2108 [S1062]]
(C No. 33932 of 1996)
(ODN C No. 01152 of 1985)
[Print N2461 [G0493]]
(C No. 33933 of 1996)
(ODN C No. 01800 of 1982)
[Print N5077 [R0007]]
(C No. 33934 of 1996)
s.113 applications for variation
s.107 Reference to Full Bench
(ODN C No. 02783 of 1974)
[Print L2807 [N0122]]
(C Nos 21166 and 21167 of 1996)
Various employees |
Various industries |
PRESIDENT O'CONNOR |
|
VICE PRESIDENT ROSS |
|
VICE PRESIDENT McINTYRE |
|
SENIOR DEPUTY PRESIDENT HANCOCK |
|
SENIOR DEPUTY PRESIDENT MACBEAN |
|
COMMISSIONER OLDMEADOW |
|
COMMISSIONER McDONALD |
SYDNEY, 22 APRIL 1997 |
REASONS FOR DECISION OF PRESIDENT O'CONNOR,
VICE PRESIDENT MCINTYRE, SENIOR DEPUTY PRESIDENT HANCOCK, SENIOR DEPUTY PRESIDENT MACBEAN, COMMISSIONER OLDMEADOW AND COMMISSIONER MCDONALD
The last occasion on which the Commission adjusted award rates on a national basis and reviewed its Statement of Principles was on 9 October 1995 in the Third Safety Net Adjustment and Section 150A Review decision (the October 1995 decision) [Print M5600]. The Statement of Principles as set out in the October 1995 decision was intended to operate until 1 July 1996.
On 21 May 1996, the Commission issued a statement which concluded:
"We propose to extend the present Principles to operate after 1 July 1996 until further principles are determined. All parties would, of course, have the right to make an application or applications concerning the operation of the Principles or their effect at any time."
As will be seen, in this decision we determine a number of changes to the current Statement of Principles. The new Statement of Principles is Attachment A to this decision.
The Australian Council of Trade Unions (ACTU) has formulated and is pursuing a wage claim which it calls a Living Wage claim. This claim was outlined to us by the ACTU, which said, in part:
"We have an objective to establish a minimum of $12 per hour for work within ordinary hours. We have an objective to achieve a minimum of $456 per standard 38 hour week. We have an objective to sustain a schedule of minimum rates of pay consistent with previous Commission decisions in terms of the relativities; and we have an objective to achieve in three annual minimum safety net adjustments $20 a week for those employees who have not received enterprise bargaining increases. They are our objectives.
As we have indicated publicly, and we indicate here today, we believe that those objectives should be progressed in three stages as specific claims before the Commission in each of the next three years. We are making that position known and we seek to present our claim, understanding the economy in which we operate and the need to ensure that these claims are sustainable. We accept that the claim and our objective in those terms should be phased in over that period." [Transcript p.4]
(We set out the complete outline in Attachment B). As appears from this outline, the ACTU's Living Wage claim contains two elements and seeks implementation in three stages. The first element is described by the ACTU as "percentage increases to minimum award rates of pay" and the second element as "a safety net adjustment expressed as a flat money amount".
The first element of the ACTU's Living Wage claim applied, for example, to the Metal Industry Award 1984 - Part I (the Metal Industry Award) seeks:
Stage 1 - an increase in the lowest rate (C.14) from $9.19 to $10 per hour (or from $349.40 to $380 per 38 hour week) - an 8.75 per cent increase - and increases in all other rates of 8.75 per cent.
Stage 2 - an increase in the lowest rate (C.14) from $10 to $11 per hour (or from $380 to $418 per 38 hour week) - a 10 per cent increase - and increases in all other rates by 10 per cent.
Stage 3 - an increase in the lowest rate (C.14) from $11 to $12 per hour (or from $418 to $456 per 38 hour week) - a 9.1 per cent increase - and increases in all other rates by 9.1 per cent.
The second element of the ACTU's Living Wage claim seeks three "safety net adjustments" each of $20 per week.
To give effect to the first stage of the ACTU's Living Wage claim, applications were, in July 1996, made by the unions named in the heading of this decision, except the Construction, Forestry, Mining and Energy Union (CFMEU), (the unions) to vary the awards named in the heading (except the National Building and Construction Industry Award 1990). The major part of this decision deals with these applications which we call "the ACTU wage claim". This claim was outlined to us in the ACTU's written submissions as follows:
"4.2 Minimum Award Rate Adjustment and Safety Net Adjustment
Two types of monetary adjustments are sought: a percentage adjustment to minimum award rates of pay and a safety net adjustment expressed as a flat money amount for employees covered by federal minimum and paid rates awards.
4.2.1 Minimum Award Rate Adjustment
The adjustment to minimum award rates of pay establishes as a minimum $380 per 38 hour standard week and $10 per hour for work within ordinary hours as a minimum award rate for any classification under federal awards.
These minimum weekly and hourly rates are claimed for the lowest skill classification in federal awards. The relativity was set at 78% of the tradesperson's rate as a result of the 1989 National Wage Case decision for this classification and was the relativity set for classification C14 in the Metal Industry Award.
As a result of the Safety Net Adjustment decisions and the commitments required by the Commission to the consequent compression of relativities arising from safety net adjustments (Print L5300 at p34), ... the lowest skill relativity for classifications under federal awards is now 79.2%. Appendix 2 sets out the skill relativities which currently apply to classifications in the Metal Industry Award. These relativities reflect those established by the Commission as a result of the August 1989 National Wage decision (Print H9100) which resulted from the 1994 and 1995 Safety Net Adjustment decisions (Print L5300 and Print M5600).
In order to maintain the internal and external relativities as established by the Commission, the schedule of rates in the classification structure in the claim is adjusted on the basis of current relativities. (See Appendix 2 for the consequential adjustment to the schedule of award rates of pay.)
The money increases which result from the proposed adjustment to minimum award rates are subject to absorption into overaward payments, irrespective of whether they reflect formal or informal agreements or individual arrangements.
The extent of the actual increase which would result from the minimum award rate adjustment will depend on the amount which the employee receives in excess of the current award wage for the relevant classification.
The excess against which the award money increases are absorbed will therefore include individual or group overaward payments, bonus, and enterprise agreements (whether formal or informal) but excludes such payments as overtime, shift allowances, penalty rates, disability allowances, fares and travelling time allowance and any other ancillary payments of a like nature prescribed by the award.
4.2.2 Safety Net Adjustment
The safety net adjustment sought through the Living Wage claim provides a $20.00 increase to federal award employees who have not benefited from enterprise bargaining and who have received no more than the $24.00 per week safety net adjustment since November 1991.
The increase is available to employees covered by paid and minimum rates awards.
The $20.00 increase may be offset to the extent of wage increases greater than $24.00 per week paid since 1 November 1991 under formal agreements." [Exhibit ACTU 5 at pp.16-18 as altered in oral submissions, Transcript p.188]
The manner in which the claim set out above would, if successful, be implemented is illustrated by application C No. 22275 of 1996 to vary the Metal Industry Award. It seeks, among other things, the variation of the wage rates clause (clause 8(a)):
"By deleting the table of wage rates in subclause 8(a) and inserting in lieu thereof the following:
(a) (i)
|
Wage Group |
Minimum Weekly
|
Hourly Rate of Pay
|
$ |
$ | |
C14 |
380.00 |
10.00 |
C13 |
398.20 |
10.48 |
C12 |
422.70 |
11.12 |
C11 |
445.30 |
11.72 |
C10 |
479.80 |
12.63 |
C9 |
502.40 |
13.22 |
C8 |
525.40 |
13.83 |
C7 |
547.90 |
14.42 |
C6 |
593.00 |
15.61 |
C5 |
616.10 |
16.21 |
C4 |
638.60 |
16.81 |
C3 |
683.70 |
17.99 |
C2(a) |
706.70 |
18.60 |
C2(b) |
751.80 |
19.79 |
C1(a) |
843.00 |
22.18 |
C1(b) |
978.80 |
25.76 |
(ii) An employee who is in receipt of wage increases of only $24.00 or less per week pursuant to national wage safety net adjustment decisions since November 1991 shall receive a further $20.00 per week increase. This shall not be in addition to the wage increases arising from the Minimum Rates Schedule outlined in paragraph 8(a)(i) if that minimum rates adjustment equals $20.00 or more."
The rates in paragraph (i) are the current rates increased by 8.75 per cent - the percentage derived from increasing the lowest rate (C14) from $349.40 to $380.00 per week. Paragraph (ii) indicates the interrelation between the two elements of the ACTU wage claim.
The increases sought in the weekly rates in the Metal Industry Award in the ACTU wage claim are:
$ | |
C14 |
30.60 |
C13 |
32.10 |
C12 |
34.10 |
C11 |
35.80 |
C10 |
38.60 |
C9 |
40.30 |
C8 |
42.50 |
C7 |
44.10 |
C6 |
47.50 |
C5 |
49.70 |
C4 |
51.40 |
C3 |
54.80 |
C2(a) |
56.90 |
C2(b) |
60.30 |
C1(a) |
68.00 |
C1(b) |
78.70 |
[Extracted from Table 1.1, Exhibit AMWU 1, p.3]
The ACTU sought that increases pursuant to its wage claim be available immediately.
In the previous Chapter, we referred to the first and second elements of the ACTU's Living Wage claim. We call the first element of the ACTU wage claim "the percentage adjustments claim" and the second element "the $20 claim".
Submissions with respect to the ACTU wage claim were made by the ACTU and the unions. When, in this decision, we say "the ACTU submitted" (or similar) we generally intend "ACTU" to include the unions.
In addition to dealing with the ACTU wage claim, this decision deals with claims by the CFMEU for wage increases in the National Building and Construction Industry Award 1990. We call these claims "the CFMEU wage claim". The CFMEU wage claim is dealt with in Chapter 9.
This decision also deals with claims that the Commission should make a statement relating to discrimination against part-time employees (dealt with in Chapter 10) and changes to the Commission's Statement of Principles (dealt with in Chapter 11).
Preliminary proceedings took place before us on 7 August 1996. At the conclusion of those proceedings, we issued a statement [Print N5490] about the future conduct of the case. This statement is Attachment C. It, in part, said:
"This Full Bench of the Australian Industrial Relations Commission today began hearing a number of applications made by unions for award variations. The applications seek to provide for what the ACTU describes as a `Living Wage'.
All parties acknowledged that the determination of the applications before the Commission could have a profound effect on the future of wage fixation and agreed that the process of determining the claims should provide an opportunity for broader participation than might otherwise be the case. However, there was disagreement as to how this could be best achieved.
Those representing employers advocated a separate inquiry to be chaired by a member of the Commission. The Commonwealth, the Territories and all States except New South Wales, advocated an extensive programme of conferences and working parties. The ACTU argued that the claim be dealt with expeditiously while acknowledging the value of wider participation. This submission was supported by New South Wales.
We have decided that broad participation should be invited but we do not consider it appropriate to conduct a separate inquiry. In our view the process of information gathering and participation with the community should not be separated from the process of arbitrating the claim."
A number of conferences, presided over by the President and MacBean SDP, took place. Their purpose was to consider the method of participation of community interests, any areas of agreement as to the substance of the claims, and other matters related to the manner in which the ACTU wage claim should be processed.
On 2 October 1996, we issued a further statement [Print N5491] which set out the manner in which we would deal with the ACTU wage claim. This statement is Attachment D. It, in part, stated:
"The parties support our view that an opportunity should be provided to the public to make submissions on the claims. Accordingly any member of the public who wishes to make such a submission is invited to do so in writing by 20 November 1996.
To assist these members of the public, the Commission will make available (at all its registries) copies of the claims, statements provided to the Commission by some parties about the issues to be addressed in the case and other relevant material. This material can be examined during business hours."
The Commission subsequently received a number of applications to intervene in the proceedings from individuals and community bodies. It also received twenty-five public submissions from individuals and community bodies who did not seek leave to intervene. Attachment E lists those who made public submissions. We express our appreciation for the contribution made by the parties, interveners and members of the public who have placed their views and arguments before us.
The main hearing took place during much of December 1996 and the second last week of January 1997.
The responses to the ACTU wage claim included complete support, complete opposition, support for a wage increase of an amount less than the claim, support for a wage increase of an unspecified amount and secondary submissions as to the awarding of an increase if a primary submission in opposition were rejected. We summarise below the responses to the ACTU wage claim of those who, in addition to making written submissions, made oral submissions. The written submissions of those who did not make oral submissions, considered overall, strongly supported either the ACTU wage claim or the awarding of an increase well in excess of that proposed by the Joint Governments (see below). We have taken all the submissions into account in arriving at our decision.
The summary which follows is intended to provide no more than a brief outline of the various responses. It does not summarise the arguments in support of the responses; many of these arguments are dealt with in the parts of this decision to which they relate.
(1) The claim should be rejected and no increase should be awarded.
(2) If the Commission decides to award an increase, an option would be to award a special allowance of, for example, $5 per week for employees on award rates in the range of $350-388 per week, subject to a number of conditions.
(3) Any increase should be fully absorbable in any type of over award payment.
(4) No increase should be payable until at least 12 months after the operative date of the third $8 per week safety net adjustment payable pursuant to the Safety Net Adjustments and Review decision (the September 1994 decision) [21 September 1994; Print L5300] and the October 1995 decision.
(5) The Commission should consider reviving the minimum wage, granting a modest increase to it, stating that award parties should in future include the minimum wage in the award at the updated level and stating that the Commission will review the minimum wage in the next review of principles.
(1) The claim should be rejected and no increase should be awarded.
(2) If the Commission decides to award an increase:
(a) a flat adjustment of $8 per week should be applied to all award rates of pay;
(b) any increase should be fully absorbable in any type of over award payment;
(c) there should be a prima facie entitlement, subject to review by the Commission, of two additional adjustments of $8 at 12 monthly intervals; and
(d) no increase should be payable until at least 12 months after the operative date of the third $8 per week safety net adjustment payable pursuant to the September 1994 and October 1995 decisions.
The claim should be rejected and no increase should be awarded. If an increase is awarded the agricultural sector should be excluded.
(1) The claim should be rejected.
(2) The Commission should establish a safety net wage; that is, a level of wage rate below which no employee may be paid.
The claim should be rejected and no increase should be awarded.
(1) The claim should be rejected and no increase should be awarded.
(2) If the Commission decides to award an increase, it should not be more than $8 per week.
Supports the position of ACCI.
(1) The claim should be rejected.
(2) A flat $8 per week increase should be applied to minimum rates awards, subject to there being a cut-off point above which award rates would not be increased. The cut-off point should be at the level of average weekly ordinary time earnings (AWOTE). (At the time of the Joint Governments' submissions, the most recently published figure for AWOTE was $676.60 per week.)
(3) The increase should be fully absorbable in any type of over award payment.
(4) The increase should not be accessible before 22 March 1997.
The claim should be granted.
Minimum wage rates should be adjusted to at least reflect increases in AWOTE. Such increases should be significantly in excess of $8 per week and be closer to the ACTU wage claim.
Award increases much greater than $8 per week should be granted.
The claim should be granted and extended to all employees regardless of age.
The claim should be granted.
Supports the principles of the ACTU's Living wage claim.
The claim should be granted.
On 25 November 1996 the Workplace Relations and Other Legislation Amendment Act 1996 (the WROLA Act) received the Royal Assent. The WROLA Act states that it is "An Act to amend the Industrial Relations Act 1988, and for other purposes". Upon the WROLA Act receiving the Royal Assent, the short title of the Industrial Relations Act 1988 was changed to the Workplace Relations Act 1996 (WROLA Act, Schedule 19, Part 1, item 1). The main substantive provisions of the WROLA Act relevant to this decision commenced on either 31 December 1996 (for example, Schedule 1, The Principal Object of the Workplace Relations Act 1996) or 1 January 1997 (Schedule 5, Awards).
In this decision we refer to the Industrial Relations Act 1988, and the Workplace Relations Act 1996 as it was immediately prior to 31 December 1996, as "the previous Act" and the Workplace Relations Act 1996 as it now is as "the new Act" or "the Act".
There was no issue that the applications before us, although they were filed before 1 January 1997 and the substantive hearing started before 1 January 1997, were to be determined under the new Act. The ACTU stated:
"The Workplace Relations Act 1996 has been passed by Parliament since our written opening submissions and schedule 5 dealing with awards will come into effect from 1 January 1997. The ACTU accepts therefore that that part of the Workplace Relations Act 1996 which, if enacted, will be the current law pursuant to which the Commission will be required to determine The Living Wage Claim."
[Transcript p.180]
This position of the ACTU was either supported by the other participants or not disputed. We therefore deal with the applications in accordance with the new Act.
The principal object of the new Act is (s.3) "to provide a framework for cooperative workplace relations which promotes the economic prosperity and welfare of the people of Australia by" a number of specified means. (The principal object of the previous Act was (s.3) "to provide a framework for the prevention and settlement of industrial disputes which promotes the economic prosperity and welfare of the people of Australia by" a number of specified means.) (emphases added)
The means specified in the new Act for achieving its principal object include:
· ensuring that the primary responsibility for determining employment matters rests with the employer and employees at the workplace or enterprise level (s.3(b));
· enabling employers and employees to choose the most appropriate form of agreement, whether or not provided for in the Act (s.3(c));
· providing the means for wages and conditions to be determined, as far as possible, by agreement upon a foundation of minimum standards (s.3(d)(i)); and
· providing the means to ensure the maintenance of an effective award safety net of fair and enforceable minimum wages and conditions (s.3(d)(ii)).
Section 88A of the new Act states that the objects of Part VI, Dispute Prevention and Settlement, include ensuring that:
Section 88B, in particular subsection (2) of it, is central to our determination of the ACTU wage claim. Subsection (2) requires the Commission, in performing its functions under Part VI, to ensure that a safety net of fair minimum wages and conditions of employment is established and maintained having regard to:
"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;
(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;
(c) when adjusting the safety net, the needs of the low paid."
Subsection (3) requires the Commission, in performing its functions under Part VI, to have regard to a number of matters, including:
"(a) the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed;
...
(d) the need to apply the principle of equal pay for work of equal value without discrimination based on sex;
(e) the need to prevent and eliminate discrimination because of, or for reasons including, race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin."
The new Act makes agreements between employers and employees at the workplace or enterprise level the prime method of regulating workplace relations. In the introduction to the Statement of Principles formulated in the Review of Wage Fixing Principles decision (the August 1994 decision) [16 August 1994; Print L4700] and continued in the September 1994 decision and the October 1995 decision, the Commission, referring to the industrial relations system in operation under the previous Act, after it was amended by the Industrial Relations Reform Act 1993, said:
"The priority in this system is on the parties at an enterprise - employers, employees and their representatives - taking responsibility for their own industrial relations affairs and reaching agreements appropriate to their enterprise." [Print L4700 p.37]
The new Act further emphasises this priority. This appears from several of the provisions of the new Act to which we have referred; for instance, ss.3(b), 3(c), 3(d)(i) and 88A(d). In addition, s.170LA requires the Commission, as far as practicable, to perform its functions under Part VIB, Certified Agreements, in a way that furthers the objects of the Act and, in particular the object of Part VIB, that is, to facilitate the making and certifying of certain agreements.
The primacy which the new Act affords to workplace agreements is a major consideration for the Commission in exercising its arbitral functions. In the present case, where the Commission is considering whether to adjust the safety net, it must balance the legislative directions to ensure that awards "act as a safety net of fair minimum wages and conditions of employment" (s.88A(b)) and to ensure that its arbitral powers are "performed and exercised in a way that encourages the making of agreements between employers and employees at the workplace or enterprise level" (s.88A(d)).
A major issue arising under the new Act is the meaning of "safety net". The new Act does not define "safety net" but contains several references to it:
· section 3(d)(ii) - "providing the means ... to ensure the maintenance of an effective safety net of fair and enforceable minimum wages and conditions of employment";
· section 88A(b) - "to ensure that awards act as a safety net of fair minimum wages and conditions of employment"; and
· section 88B(2) - "the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained".
The term "safety net" was also used but not defined in the previous Act. Section 88A(b) of the previous Act included (as an object of Part VI) a direction "to ensure that awards (other than paid rates awards) act as a safety net of wages and conditions of employment underpinning direct bargaining".
The meaning of "safety net" and of its attendant words ("effective", "fair minimum wages and conditions of employment", and "established and maintained") were the subject of considerable debate before us.
The ACTU submitted that the roles of "a safety net of fair minimum wages and conditions of employment" (s.88B(2)) were (1) to protect employees whose wages were determined by federal awards and (2) to provide the foundation of minimum standards for enterprise bargaining informed by the precepts of a flexible and fair labour market. Maintenance of a safety net of fair minimum wages and conditions of employment required an award system which was both relevant and secure. The establishment and the maintenance of the safety net was to be performed by reference to the matters specified in paragraphs (a), (b) and (c) of s.88B(2). The deletion of the words "relevant", "consistent and secure", which were in s.88 of the previous Act, did not signify a legislative intent that awards should not be maintained in their current form (subject to s.89A of the new Act, allowable award matters) or become merely a foundation against hardship.
The Joint Governments submitted that, while the term "safety net" was not new in industrial relations, the nature of the safety net must be determined in the context of the new Act and, in some important respects, differed from what it had been under the previous Act. Although the wages and conditions currently contained in awards provided a convenient starting point for establishing an award safety net under the new Act, the structure and content of current awards was not consistent with the safety net of awards required by the new Act. Once s.89A is implemented, awards will be changed to exclude non-allowable award matters. The safety net referred to in ss.3(d)(ii), 88A(b) and 88B(2) of the new Act was not to be equated to (1) this convenient starting point which the Joint Governments were prepared to accept for the purpose of these proceedings, (2) the safety net under the previous Act, or (3) any concept of a safety net independent of the legislation. That this was so, the Joint Governments argued, was emphasised by the repeal of s.90AA(2)(a) of the previous Act which required the Commission to ensure, as far as it could, "that the system of awards provides for secure, relevant and consistent wages and conditions of employment" and of the previous s.88A which stated that an object of Part VI was to ensure that "awards (other than paid rates awards) act as a safety net of minimum wages and conditions of employment underpinning direct bargaining". The award safety net had now to be understood in the context of a move, evidenced by the new Act, away from generalised award wage increases to more agreement making at the workplace or enterprise level. The reference to an "effective award safety net" in s.3(d)(ii) was to one which would not discourage the making of agreements. The Joint Governments took issue with the submission of the ACTU and others that an effective safety net necessarily connoted the adjustment of all rates of pay prescribed by awards and the maintenance of wage relativities between awards.
As we have said, the term "safety net" is not defined. It is used, not in a literal sense, but in a metaphoric one. It is, however, a term that was used in the previous Act, although with reference to "underpinning direct bargaining". It has been used in decisions of the Commission, including the Review of Wage Fixing Principles decision (the "October 1993 decision") [25 October 1993; Print K9700], the August 1994 decision, the September 1994 decision and the October 1995 decision. Parliament, in using the term in the new Act may, in our view, be presumed to have known of this usage.
Section 88B(2) of the new Act refers to "a safety net of fair minimum wages and conditions of employment". The key factor governing our considerations here is, in our view, fairness. There is, of course, nothing new in the Commission having to determine what is fair; it has been an inherent part of its and its predecessors' functions for almost 100 years. Determining what is fair involves a consideration and balancing of the relevant factors. The main factors in our present task, as we see them, are the need to adequately protect employees who have, for whatever reason, been unable to reach an agreement with their employer and the need to encourage the making of agreements between employers and employees at the workplace. In the current Statement of Principles the Commission said:
"The award system provides a safety net of wages and conditions which underpins enterprise bargaining and protects employees who may be unable to reach an enterprise agreement while maintaining an incentive to bargain for such an agreement." [Print L4700 at p.37]
In our view, this statement remains substantially correct under the new Act, although we would now, having regard to the repeal s.89A(b) of the previous Act, delete the words "underpinning direct bargaining and", and, having regard to the provisions of the new Act relating to agreements, replace "enterprise agreement" with "agreement". We would expect that, pursuant to s.106 of the new Act, principles may be developed to explain the way in which the award system, made up of allowable award matters, will be simplified. This may lead to changes to the award system. However, the system as it exists from time to time will remain the safety net of fair minimum wages (and conditions of employment).
For many years, this Commission and its predecessors have given much weight to economic circumstances and the likely economic effects of their decisions, especially those made in general wage cases. This was true even in those long periods when the legislation imposed no obligation upon the tribunal to take these factors into account. The Act now contains terms which expressly refer to economic criteria and objectives. Section 3 states that the principal object of the Act is "to provide a framework for cooperative workplace relations which promotes the economic prosperity and welfare of the people of Australia by [among other means] encouraging the pursuit of high employment, improved living standards, low inflation and international competitiveness through higher productivity and a flexible and fair labour market". Section 88B(2)(b) requires the Commission to have regard to "economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment". Section 90 directs it to have regard to "the state of the national economy and the likely effects on the national economy of any award or order that the Commission is considering, or is proposing to make, with special reference to likely effects on the level of employment and on inflation". Although the Act does not exhaustively prescribe the economic factors to which the Commission should have regard, it appears to accord special relevance to three: employment, inflation and productivity.
Economic objectives and criteria co-exist, of course, with other objectives and criteria. The latter include objectives and criteria which flow from the priority accorded in the new Act to agreement making. They also include considerations as to the adequacy of safety net wages with specific regard for the needs of the low paid. Where economic and non-economic criteria point to different outcomes, the Commission (guided by the Act) has the responsibility of determining priorities. It now performs that task mindful of the reduction which has occurred since the early 1990s in the Commission's influence over the totality of wages and other labour costs. The reduction in the effective scope of Commission-determined wage increases may warrant an approach to our task which differs from that which would be appropriate in respect of increases having a wider application. Employees paid at award rates have received increases prescribed in earlier reviews of the wage-fixing principles; but award wages have risen much more slowly than wages overall. This entails a tension between the Commission's responsibilities in relation to the economy and its obligations to those employees who depend upon award protection.
In this Chapter, we focus our attention, first, on the cost of the ACTU wage claim and alternative outcomes. We measure "cost" principally as percentage additions to average weekly full-time adult earnings (AWOTE) (Chapter 6.2). Secondly, we discuss issues of principle, of an economic character, which were raised in the case and go to the purposes and effects of award wage increases (Chapters 6.3 and 6.4). Thirdly, we examine indicators of the state of the economy which are, in our view, pertinent to its capacity to absorb added labour costs (Chapter 6.5). Fourthly, we discuss issues going to the impact of wage increases on particular sectors of the economy (Chapter 6.6). A conclusion follows (Chapter 6.7). Having regard to the range of opinions and arguments put to us by the parties, we think that readers of this decision will be assisted if, at some points, our discussion of the submissions is placed in attachments. This leads to a more concise treatment of issues in this Chapter than would otherwise be possible.
Not surprisingly, assessments of cost were extensively debated by the parties. The debate centred on the ACTU wage claim. In considering the cost of this claim, if granted, it is necessary to distinguish between direct and indirect costs. The former relate to compliance with the proposed award variations (including equivalent variations under State awards); the latter with wage increases which may not be legally mandated but - as is alleged - can, realistically, be expected to occur in consequence of the proposed award increases. The parties' contentions about both direct and indirect cost increases are outlined in Attachment F.
In attempting to estimate the direct cost of the ACTU wage claim, the parties used different data sources, none of which was entirely adequate for the purpose. The manner in which the parties derived and interpreted the data is set out in Attachment F. For reasons which are explained in that Attachment, we have found it appropriate to adapt the various estimates. Table 6.1 summarises the adapted estimates, distinguishing between the percentage adjustments claim and the $20 claim (see Chapter 2).
Adapted from: |
Percentage adjustments |
$20 |
Total |
ACTU |
0.5 - 0.95% |
1.15 - 1.22% |
About 1.9% |
Joint Governments |
1.84% |
0.16% |
About 2% |
Reserve Bank |
About 2% |
NA |
NA |
ACCI |
Below 2.1% |
1% |
Below 3.1% |
NFF |
NA |
NA |
About 1.5% |
These estimates do not allow us to identify with any precision the direct cost of granting the ACTU wage claim. Although the ACTU and Joint Government estimates of total cost, arrived at by very different methods, seem reasonably close, they differ substantially in their composition. The fact that a low estimate of the cost of the percentage adjustments increase goes with a high estimate of the cost of the $20 claim, and vice versa, is not accidental. Employees who are disqualified from the percentage adjustments increase by receipt of over award payments may qualify for the $20; and employees who receive the full percentage increase do not get the $20. Only if we were minded to grant the ACTU wage claim in full could we derive much comfort from the convergence of the estimates of total cost. Despite the differences between the various estimates, however, we think that the most reasonable conclusion open to us is that the ACTU wage claim, if granted, would add directly about two per cent to AWOTE. We deal with the claim on that basis. It may be, as ACCI suggests, that the proportional impact on costs of part-time and casual employment would be somewhat greater than the effect on AWOTE.
An issue arose during the case as to whether the estimated direct cost of the ACTU wage claim should be subject to an offset. The Reserve Bank, having stated the estimate noted in Table 6.1, said the following:
"At present, the group of employees subject to the claim is contributing around 0.4 of a percentage point to the annual increase in AWOTE. As a result, the Bank estimates that the claim would add a further 1.6 percentage points to current annual growth in AWOTE. This direct effect, alone, would take aggregate wage growth to well over 5 per cent." [Exhibit Commonwealth 7 at p.4]
The Metal Trades Federation of Unions (MTFU) referred to this passage and commented:
"In other words forward estimates of projections of AWOTE, underlying or headline inflation by the RBA and others for 1996-97 and 1997-98 already have incorporated within them a continuation of current trends for those receiving the SNA. Thus any additional impact from the ACTU claim is what comes on top of the current $8SNA. Unlike the RBA who acknowledge the obvious and discount their 2% estimate by 0.4, the Commonwealth does not. Thus the actual starting point of the Commonwealth costing is not 2.25%, but less than 2% once this adjustment is made in the context of assessing the impact against forward projections." [Exhibit AMWU 7 at p.48]
The Joint Governments said that their estimate was "not discounted for any safety net adjustment that might otherwise have been paid in the absence of the ACTU claim and that is because in putting that estimate forward we were specifically quantifying the direct contribution of the ACTU claim to wages growth viewed in isolation" [Transcript p.1219]. We do not know how the Reserve Bank calculated the discount of 0.4 per cent. What it seeks to do, however, is recognise that the growth rate of AWOTE reflected in current data incorporates the effects of previous safety net increases. In that sense, a "neutral" outcome to the present case would be one which continued those effects. Presumably (though the Bank is not explicit on the point) this implies further annual safety net increases of $8 per week. We bear this perspective in mind in reaching our decision. For the present, it is appropriate to note that the 2 per cent estimate of the direct cost of the ACTU wage claim represents a comparison with a zero increase, rather than with an increase of the order granted in recent safety net reviews.
We turn to the indirect cost of the ACTU wage claim, if granted, in the form of wage and salary increases flowing - wholly or in part - to employees other than those who would be direct beneficiaries of the Commission's order. The relevant effects appear to be these:
(1) The terms of some agreements may necessitate or permit wage increases. An agreement may specify that the wages provided in it will be increased if award rates are increased. Alternatively, it may provide for wages to exceed award rates by some amount or percentage. Some agreements allow the wage clauses to be revisited in the event of national or general wage increases.
(2) Even where enterprise bargains and other agreements do not refer to the award, whether explicitly or by implication, negotiations leading to future agreements may be influenced by the parties' awareness of award rates and increases therein.
(3) Employers may elect to maintain over award payments. Such payments may reflect a policy of attracting superior labour or differentiating between employees by reference to skill, experience or other factors. An employer may wish to persevere with such a policy and thus maintain the level of over award payments.
(4) Employees may successfully insist upon the maintenance of over award payments.
(5) Higher inflation rates resulting from the success of the claim may lead to further wage claims.
(6) Decisions about the remuneration of employees who are subject to neither formal agreements nor awards may be influenced by the level of award rates. This possibility has particular application to the salaries of professional and executive employees, which may be affected by comparisons with the salaries of award dependent employees in higher classifications.
We discuss in Attachment F the contentions of various parties about indirect effects. In the light of that discussion, we think that at least some of the above effects are likely to be important. We are satisfied that, because of them, the total cost of the claim would exceed by a substantial margin the two per cent addition to AWOTE which is our best estimate of the direct cost.
It was unfortunate that the debate about cost focused so much on the ACTU wage claim. Although the Commission sometimes grants claims in full and sometimes totally rejects them, it often does neither. The principal estimates given to us about the cost of lesser increases were provided by the Joint Governments [Exhibit Commonwealth 13, Attachment B] in response to questions asked by the Bench. They refer to flat-rate increases of $8, $10, $12 and $15 per week. The estimates are given for alternative assumptions as to -
· whether the cut off for wage increases at AWOTE, as proposed by the Joint Governments (see Chapter 4.2.2), does or does not apply; and
· whether the award increases are absorbed into both formal agreements and over award payments or absorbed into formal agreements only.
The Joint Governments' estimates are shown in Table 6.2.
AwardWageIncrease |
Absorption into Formal Agreements and Over award Payments |
Absorption into Formal Agreements Only | ||||
Cut-off Applies |
No Cut-off |
Cut-off Applies |
No Cut-off | |||
$8 |
0.21 |
0.27 |
0.26 |
0.33 | ||
$10 |
0.26 |
0.34 |
0.32 |
0.42 | ||
$12 |
0.31 |
0.40 |
0.39 |
0.50 | ||
$15 |
0.49 |
0.60 |
0.58 |
0.72 | ||
The Joint Governments stressed that the cost estimates shown in Table 6.2 describe direct effects only. In particular, they do not reflect possible alterations in the outcomes of enterprise bargaining. The Joint Governments said:
"In this regard, while it is unrealistic to assume that, in the absence of a safety net increase, union wage negotiators would have no regard to external factors influencing the living standards of their members, such as rises in prices, an $8 per week safety net increase would be unlikely to add anything to what might otherwise be the starting point for union enterprise bargaining wage negotiators. Inevitably, employee wage expectations entering negotiations incorporate some notion of real wage maintenance, even in a low inflation environment and in an enterprise bargaining system which is substantially productivity based. If the safety net increase of $8 per week proposed by the joint Governments plays a role in unions' initial position in wage negotiations, it is likely that this would be in place of rather than in addition to other factors.
However, this will not hold at higher levels of safety net increase. Even increases of the order of $12 or $15 per week, representing as they do real wage increases for considerable numbers of workers, would have a substantial impact on the starting point for many wage negotiations. In this way, a safety net increase of $12 or $15 would put a new, higher floor under enterprise bargaining outcomes, or in many instances provide a significant disincentive to bargain."
Thus the Joint Governments contended that there is a discontinuity, or threshold, in the effect of safety net increases on negotiated wages. The threshold lies somewhere between $8 and $12. Increases below the threshold amount would not alter bargaining outcomes, but larger increases would do so. We do not know whether such a discontinuity exists; but we do accept that the attitudes of negotiators will be more strongly affected by larger than by smaller safety net increases. This is a reason for caution in determining the amount of any increase in award rates.
In the present state of the labour market, the likely effect of increases in award wages on job opportunities is a serious concern. Several of the parties gave much attention to it. On the one hand, there were contentions to the effect that anything more than modest increases - or perhaps any increases at all - would significantly depress employment. On the other, it was argued that if the ACTU claim were granted, there would be little or no adverse impact. Even if there were a small loss of jobs, the detriment would be outweighed by the gain in living standards afforded to low paid workers.
We discuss, in Attachment G, many of the parties' contentions about this matter, together with the opinions expressed in numerous documents which were placed before us. Having read the submissions and the associated documents, we think that the allegedly adverse impact of wage increases on employment has three aspects:
(1) A higher general level of real wages tends to reduce the level of economic activity and, for any given level of activity, to reduce the quantity of labour employed.
(2) Wage increases which impose or accentuate a pattern of wage relativities different from that which would emerge in an unregulated market will cause structural unemployment. Administratively-imposed relativities are contrasted with "flexible" or "market-clearing" relativities. Inasmuch as the Commission raises the relative wages of particular groups, it is likely to exacerbate unemployment among the groups which the Commission wishes to assist.
(3) Wage increases sufficient to raise inflation above a rate deemed acceptable by the monetary authorities will cause the authorities to raise interest rates, curtailing activity and employment.
We defer, for the present, our comments on the third of these aspects. The first may conveniently be described as the macro-economic aspect of the problem and the second as the micro-economic aspect.
In Chapter 6.4, we refer further to macro-economic issues relevant to the imposition of higher or lower real wages. It may not always be true that reducing aggregate real wages or curbing increases in them adds to job opportunities; but it seems likely that in recent decades such a relation has existed. There is little dispute that the very large increases in real wages which occurred in the mid-1970s contributed to (but were not necessarily the only cause of) higher unemployment. As we understand the Accord, the trade union movement accepted a degree of wage restraint. One of its purposes was to facilitate the reduction of unemployment. No economic commentaries which have been brought to our notice suggest that the strategy was based on a mistaken conception of the relation between aggregate real wages and employment. Against this background we consider that an overall level of real wages higher than might otherwise have existed, brought about by both agreements and awards, militates against the expansion of employment and the reduction of unemployment.
On the other hand, the material which we review in Attachment G gives ground for considerable doubt about the micro-economic gain from leaving the relative position of the low paid to "the market". Indeed, our assessment of the debate reported in Attachment G is that moderate increases in the wages of the low paid, of themselves, do little or nothing to diminish their job prospects. Increasing award wages at all levels by 8.75 per cent, however, would alter, to a significant degree, the position of one group - award dependent employees - relative to that of employees who have benefited from agreements. The micro-economic effects of a change of that dimension (with wage increases under the Metal Industry Award, for example, ranging from $30.60 to $78.70 per week) might be small; but they might not be. A measure of caution seems appropriate.
We turn to the third aspect of the wages-employment relation, namely, the risk of an adjustment of monetary policy to neutralise or minimise the effect of a wage increase on inflation. The Reserve Bank Bulletin for October 1996 [Exhibit ACCI 9, Tag 11] noted that the subdued labour market of the past year had reduced the growth rate of AWOTE from over 5 per cent in 1995 to under 4 per cent. This was consistent with the 2-3 per cent inflation target of the Government and the Bank. The reduction had occurred despite enterprise bargain increases running at over 5 per cent "only because a significant part of the labour force has received modest increases" [p.1]. The Bulletin comments:
"Labour costs present the main risk to [the low inflation] profile. Sustaining low inflation as employment gathers strength will require moderation in wage demands, especially in new enterprise agreements. Risks on labour costs also come from changes to the industrial relations framework and the `Living Wage' claim, although it is impossible to predict what effects these might ultimately have on wages."
The Governor of the Reserve Bank on 28 November 1996 delivered a speech [Exhibit Commonwealth 11, Item 2] wherein he observed that the community might wish "to see some support promoted for the weakest bargaining groups":
"So intervention to nudge up minimum wages is probably a reasonable expression of community preferences. As an example of this, the `safety net' pursued in recent years has been compatible with low inflation. Continuation of such `safety net' adjustments, as proposed by the Government, seems sensible to us. But if the interventions are more wide-ranging, the outcome will be slower employment growth - either because individual employers respond to the price/wage squeeze facing them, or because the Bank is forced to respond to emerging inflationary pressures by raising interest rates. Such an economy-wide macro response may seem unsatisfactory, particularly if the wages claims are seeking to re-establish longstanding wage relativities. But the alternative - to allow these incipient inflationary pressures to be transformed into higher actual inflation - is hardly beneficial to the industrially weak. It would simply erode the apparent gains made by workers at the bargaining table and in the Commission, and set the scene for further rounds of wage increases. With the painful experience of reducing inflation still fresh in our minds, we see nothing to be gained - and much to be lost - in accommodating inflationary pressures."
We were also provided with a media release of 11 December 1996: "Statement by the Governor, Mr Ian Macfarlane: Reduction in Interest Rates" [Exhibit Commonwealth 11, Item 3]. This includes the following passage:
"In responding to present circumstances, monetary policy remains focussed on longer-term factors impinging on the economy, and on the outlook for inflation. Here the outlook for labour costs remains crucial. At present, aggregate wage developments are consistent with inflation staying at a 2 to 3 per cent average. Monetary policy is assuming, for the time being, that this will remain the case. However, if wages growth were to rise appreciably, either because of enterprise bargains or centralised decisions, there would be a severe squeeze on business, which is still coming to grips with the competitive, low inflation environment. Monetary policy would, in such circumstances, be set to preserve the favourable inflation outlook."
As we understand the Reserve Bank's position, it intends to act, so far as it can, to ensure that the inflation rate remains within the range 2-3 per cent. It will use its influence over interest rates to achieve this end. Moreover, it has views about the order of increase in wages which is consistent with its objective and would not require a corrective increase in interest rates. We do not interpret the expression of these views as an attempt to usurp the Commission's role; nor do we construe the Reserve Bank statements as implying any rigid prescription - for example, that award wage increases of $X will not precipitate higher interest rates but increases of $X + 1 will do so. The Bank, as custodian of monetary policy, has chosen to make those whose actions have a bearing on wage outcomes, including this Commission, aware of its policy stance. We concur in the observations of the Reserve Bank Bulletin about the relative growth rates of negotiated and award wages. The Governor, in his speech of 28 November 1996 said:
"All this has concentrated on the linkage from wages to prices. But history tells us that this is a two-way relationship, with wages also responding to inflation, rather than causing it. I want to register with you that I understand that linkage, and understand that if workers make wage deals on the basis of low inflation, then we need to deliver that. The best contribution that monetary policy can make to safeguarding workers' real wages from erosion by inflation is to ensure that inflation stays low. You will sense, from what I have said today, that we take this commitment very seriously."
If, as the Governor suggests, workers will "make wage deals on the basis of low inflation", a problem which is of concern to us - the growing gulf between negotiated and award wages - may be significantly ameliorated.
We give weight to the Bank's views in reaching our decision. We do so, of course, because we acknowledge its role in the shaping of macro-economic policy; but also because of our concern that a rise in interest rates would adversely affect employment and unemployment.
In the course of the proceedings much was said about the relation between movements in wages, prices and productivity. The principal positions were those argued by the ACTU and ACCI. We outline and discuss the various contentions at some length in Attachment H. We summarise as follows the alternative positions:
· From the ACTU's viewpoint, the growth of productivity permits and justifies a rising level of real wages. Award wage earners should share in the growth of real wages. The participation of wage-earners in the benefits of rising productivity is not automatic, but requires appropriate increases in money wages. Those increases should conform to the criteria of "prices plus effective productivity". Effective productivity is the productivity of Australian labour adjusted for the terms of trade. The ACTU states that, in recent years, workers covered by enterprise bargains have secured increases in wages sufficient to enable them to share in the growth of productivity. Those who rely on award rates, however, have not enjoyed a similar growth in real wages; and the Commission should intervene in their interests.
· ACCI emphasises the determination of real wages by productivity, but does not see the transmission of productivity growth into real wages as significantly dependent upon the growth rate of money wages. ACCI acknowledges that a rapid growth of money wages may, for a time, raise real wages; but this effect will eventually be nullified by price increases and, in the interim, will diminish employment. ACCI does not consider that a case for or against wage increases can be derived from the behaviour of any particular measure of the relation between real wages and productivity such as real unit labour costs (RULC). This is because, over time, structural economic change causes alterations in those measures which are unrelated to the economy's capacity to support real wages.
We agree with ACCI that the scope for wage increases cannot be deduced from a formula such as "prices plus effective productivity" or constancy of RULC. We do not agree, however, that the transmission of productivity growth into higher real wages is independent of the movement of money wages. In the previous section, we noted a comment of the Governor of the Reserve Bank that "the linkage from wages to prices ... is a two-way relationship, with wages also responding to inflation, rather than causing it". We agree with this comment. During a period of inflation, failure to raise money wages is likely to entail a reduction of real wages relative to productivity. That effect needs to be taken into account alongside other effects - possibly adverse to the economy - of increasing money wages.
Issues surrounding the relation between wages, prices and productivity and the Commission's role in relation to the level of real wages have, in the past, been discussed in the context of the Commission's exerting much influence over the average level of wages. It now has less influence over average wages than for many decades. We thus face the question as to the relative weight to be given to overall wage movements, over which the Commission retains some influence, and the interests of those who do depend on awards. Between 1991-92 and 1995-96 AWOTE grew by 14.1 per cent and award rates by 5.4 per cent. The implicit price deflator for private consumption expenditure in the national accounts increased by 8.1 per cent. [These percentages are calculated from data in Australian Economic Indicators, February 1997, ABS cat. 1350.0, pp.60, 89 and 90.] In real terms, AWOTE increased by 5.6 per cent, while award rates fell by 2.5 per cent. The ACTU's solution to the dilemma implicit in these facts entails a further addition to AWOTE which, we consider, would be excessive relative to productivity growth and other indices of economic capacity. Parties who oppose award increases, ask us, in effect, to allow award wages to fall further behind the growth of productivity. The dilemma is inherent in the wages system which has come into being in recent years.
In considering the current state of the economy, we focus our attention upon factors which we consider relevant to the economy's capacity to sustain an addition to the wage bill. Consistent with this approach, we refer to evidence of employment and unemployment, wage movements, inflation, investment productivity and profits and to indicators of the present and likely future rate of economic growth.
Chart 6.1, provided by the Joint Governments, shows the behaviour of measured unemployment in the period from December 1985 to December 1996.
It is evident that the reduction in unemployment rates which began late in 1993 or early in 1994 stalled in mid-1995. Tables 6.3 and 6.4 show labour-market aggregates relevant to this experience. Table 6.4 demonstrates the reduction in the growth of employment which underlies the failure of unemployment to fall after mid-1995 and shows that both full-time and part-time employment were affected by it. If employment had risen between June 1995 and December 1996 at the same proportional rate as in the earlier period, and if the participation rate were unaffected, unemployment in December 1996 would have been 4.8 per cent. It was, in fact, 8.6 per cent.
Employment (`000)* |
Labour Force | |||
Month |
Full-time |
Part-time |
Total |
Participation rate % |
December 1993 |
5944.8 |
1841.7 |
7786.4 |
62.9 |
June 1995 |
6222.7 |
2031.8 |
8254.5 |
63.8 |
December 1996 |
6298.0 |
2103.4 |
8401.5 |
63.6 |
*Seasonally adjusted
Source: Australian Economic Indicators, February 1997, ABS cat 1350.0, p.74.
Full-time |
Part-time |
Total | |||||||
`000 |
% |
`000 |
% |
`000 |
% | ||||
December 1993-June 1995 |
277.9 |
4.7 |
190.1 |
10.3 |
468.1 |
6.0 | |||
June 1995-December 1996 |
75.3 |
1.2 |
71.6 |
3.5 |
147.0 |
1.8 | |||
The most recent data show that between December 1996 and February 1997 employment grew (on a trend basis) by 16,700 persons (comprising 21,100 more part-time and 4,400 fewer full-time workers). The unemployment rate was constant at 8.6 per cent [Labour Force: Preliminary, February 1997, cat 6202.0, p.8]. The decline in full-time employment, relative to total employment, which these data reflect, is part of a continuing trend. In December 1993, 76.3 per cent of all employees were in full-time employment. By February 1997, the proportion had fallen to 74.7 per cent. To the extent that part-time employees would prefer full-time jobs, the degree of under employment has increased. This intensifies our concern about the current condition of the labour market.
Table 6.5 sets out data of wage and price movements from 1991-92 to the present.
Year ended |
AWOTE |
Award Rates |
CPI |
Implicit Deflator for Final Consumption Expenditure (private) |
1992-93 |
1.7 |
1.3 |
1.0 |
1.9 |
1993-94 |
3.0 |
1.1 |
1.8 |
1.6 |
1994-95 |
4.1 |
1.3 |
3.3 |
1.8 |
1995-96 |
4.6 |
1.7 |
4.2 |
2.6 |
August 1996 |
3.8* |
1.2 |
||
September quarter 1996 |
2.1 |
1.6* | ||
October 1996 |
1.2 |
|||
November 1996 |
4.0* |
|||
December quarter 1996 |
1.5 |
1.5* |
*Trend values
Sources: Australian Economic Indicators, February 1997, cat 1350.0, pp.89, 90; National Income, Expenditure and Product: Australian National Accounts, December quarter 1996, cat 5206.0, pp.94 and 96; Average Weekly Earnings, November 1996, cat 6302.0, p.2; Consumer Price Index, December quarter 1996, p.5.
There is an obvious question as to what part of the difference in the growth of AWOTE and award rates is due to the outcomes of enterprise bargaining. We cannot precisely answer that question; but information about recent increases under federal agreements, derived from the Workplace Agreements Database of the Commonwealth Department of Industrial Relations (provided by the Joint Governments), is given in Table 6.6. "AAWI" - average annualised wage increases - denotes the wage increases for which the agreements provide during the terms of the agreements expressed as annual rates. These increases are forward indicators of wage trends because the agreed increases are realised over
Note: Agreement and employee estimates are for all federal wage agreements in the period. Estimates of AAWI per employee are based on quantifiable wage increases.
Source: Department of Industrial Relations, Wage Trends in Enterprise Bargaining, December quarter 1996.
the periods of the agreements. Chart 6.2 compares the wage increases agreed in each quarter with the increases actually taking effect under all current agreements. Since 1994 (and at least to the September quarter of 1996) wage increases negotiated in new agreements have exceeded the currently-prevailing rates of increase, with the consequence that the latter have followed a rising trend. Average private-sector settlements in the June and September quarters of 1996 were increased by major bank agreements certified in those quarters. If four agreements reached in the December quarter (for Qantas, Ansett, Coles Supermarkets and Bi-Lo) are excluded, the AAWI in that quarter is 4.8 per cent. There is little sign of any rising or falling trend in the level of settlements over the course of 1996.
The Joint Governments have supplied information about formal State agreements approved in New South Wales, Queensland and South Australia. They say:
"For the June quarter 1996, the latest period for which data are available, the weighted average AAWI for these State systems was 5.3 per cent per employee. This is broadly consistent with the AAWI of 5.6 per cent per employee for federal agreements in the June quarter. This latest result, with wage increases from State agreements appearing to move more into line with outcomes from federal agreements, contrasts with the pattern during 1995 and into the early part of 1996 when federal agreements generally provided lower increases than State agreements."
The wages data contained in Tables 6.5 and 6.6 and those depicted in Chart 6.2 together with the information about State agreements provided by the Joint Governments, bear out the observations made in the Reserve Bank Bulletin (noted in Chapter 6.3) to the effect that the achievement of a growth rate of AWOTE which is below 4 per cent has required an offset to the increases secured in enterprise bargaining. That offset has been provided by a modest growth rate of wages in the non-bargaining sector.
The CPI increases shown in Table 6.5 are "headline" increases ie, those published by the ABS. Referring to the year ended in the December quarter of 1996, the Joint Governments say: "The Treasury `underlying' CPI (which abstracts from some seasonal and one-off factors including changes in interest rates) rose by 2.1 per cent, down from its increase of 2.4 per cent over the year to the September quarter." Chart 6.3, provided by the Joint Governments [Exhibit Commonwealth 9], shows that the underlying rate has been less volatile than the "headline" rate. The CPI movements shown in Table 6.5 and Chart 6.3 indicate a recent slackening of the inflation rate. This is also apparent (though less dramatically so) in the movements of the implicit deflator for final consumption expenditure (private) which are shown in Table 6.5. As we have noted, the Reserve Bank has expressed its determination to prevent a reversion of the inflation rate to earlier levels.
Table 6.7 shows levels and rates of growth of labour productivity (measured as gross domestic product per hour worked) in the period from 1987-88 to the December quarter of 1996. Although we set out in the table productivity increases derived from four alternative measures, account should
Year ended |
GDP(A) |
GDP(P) |
GDP(P)market sector |
GDP(P)non-farm market sector |
1988-89 |
0.2 |
1.6 |
2.7 |
2.7 |
1989-90 |
-0.6 |
-0.2 |
-0.2 |
-1.1 |
1990-91 |
0.5 |
0.1 |
0.5 |
0.3 |
1991-92 |
3.2 |
2.1 |
3.1 |
3.1 |
1992-93 |
2.5 |
2.0 |
1.4 |
0.9 |
1993-94 |
2.1 |
1.9 |
3.0 |
3.2 |
1994-95 |
-0.3 |
0.0 |
0.6 |
1.6 |
1995-96 |
1.7 |
1.8 |
4.0 |
3.3 |
1996
|
3.4
|
3.0
|
4.0
|
3.4
|
Source: National Income, Expenditure and Product: Australian National Accounts, December quarter 1996, cat 5206.0, p.69.
be taken of the ABS's advice that for the non-market sector, "the methods used to estimate gross product at constant prices do not adequately capture the changes in gross product per unit of labour input", so that "the estimates for the market and non-farm sectors provide more useful indicators of changes in labour productivity than the estimates for all industries". This advice suggests that the first two of the four measures used are less useful than the last two. Moreover, the third measure - GDP(P) market sector - is affected by the influence of seasonal conditions in rural industries. Thus, although there may be differences of opinion as to which measure most accurately represents the long term productivity growth rate, it is the final column of the table which permits the most useful year-on-year comparisons of productivity performance. The table shows that productivity has grown quite rapidly in the period after 1990-91, but the most recent experience suggests a possible deceleration.
The Joint Governments forecast continued productivity growth in 1996-97, though at a slower rate than through the year 1995-96.
Profitability is measured in several ways; and the different measures do not necessarily give the same impressions of what is occurring. This fact accounts for some of the disagreements about profitability which emerged during the case.
The ACTU submitted that "the profit share is at an all time high, but with productivity gains being made in the 1990s it is appropriate that labour receive in national income an amount equivalent to its increasing contribution." [Exhibit ACTU 5, section C at p.120]. This submission appears to be founded on a table showing, for the years from 1973-74 to 1995-96, (1) the ratio of private corporate gross operating surplus to gross non-farm product at factor cost, and (2) the ratio of non-farm wages, salaries and supplements to gross non-farm product at factor cost. As to (1), the table does show that the ratio was higher in 1995-96 than in the earlier years and generally higher in the 1990s than in earlier periods. Ratio (2) fell by about four percentage points in the early 1980s and has since remained at the lower level. The Joint Governments provided a chart, reproduced as Chart 6.4, which shows the share of private corporate gross operating surplus in the gross domestic product at factor cost.
This chart covers the period from the June quarter of 1976 until the June quarter of 1996. For recent quarters, estimates of the private corporate profit share, calculated on a trend basis, are:
March 1996 17.6
June 1996 17.6
September 1996 17.6
December 1996 17.4
[Source: National Income, Expenditure and Product: Australian National Accounts, December quarter 1996, cat 5206.0, p.38.]
The Joint Governments commented that the private corporate profit share continued "around historically high levels" [Exhibit Commonwealth 8 at p.72]. This appears to be correct and, when allowance is made for a difference in the specific measures used, is consistent with the ACTU's contention about the profit share. The Joint Governments pointed out, however, that there was a significant fall in the gross operating surplus of the public trading enterprise sector relative to the GDP. This reflected, in part, "the influence of privatisation, a factor that has correspondingly contributed to the relative stability of the private corporate profit share".
A somewhat different view of profitability is suggested by a consideration of company profits. The Joint Governments said:
"The two main survey measures of company profits have shown divergent trends, reflecting the rise in depreciation and net interest paid. Gross company profits (before income tax, net interest and depreciation) fell by 3.5 per cent over the year to the September quarter 1996. Over the same period, net company profits (before income tax, but after depreciation and net interest) fell by 19.1 per cent." [Exhibit Commonwealth 8 at p.72]
ACCI provided a chart showing the historical record, since 1986, of real company profits [Exhibit ACCI 9, Tag 10]. Company profits, for this purpose, are measured after net interest and depreciation but before income tax; and they are converted to 1989-90 prices by means of the implicit price deflator for domestic final demand. We reproduce this chart as Chart 6.5. It suggests that the profitability of companies, having recovered from the effects of recession, has been falling since the latter part of 1994.
ACCI objected to the ACTU's use of historical data of wage and profit shares. Structural changes in the economy invalidated inferences drawn from historical comparisons: "One simply cannot look at this number, or any of the other ratios quoted by the ACTU, and make statements about whether they are too high, or too low, or anything else" [Exhibit ACCI 8, section 1 at p.24]. This contention appears to be closely related to ACCI's objections (noted in Chapter 6.4) to the ACTU's reliance upon indicators such as "prices plus effective productivity" and RULC. We agree with it. That the share of wages, salaries and supplements in the GDP at factor cost is now lower than at a time such as the late 1970s does not mean that the share could be restored to the earlier level without adverse effects. Correspondingly, it may be neither possible nor desirable to reduce the profit share (however measured) to the level of some arbitrarily chosen earlier period.
Recent trends in profitability, however, are an important indicator, among others, of the sustainability of wage increases. Ideally, measures of profitability would take into account the funds employed by businesses. No data of that character have been provided to us. Despite that, we have some concern about the decline in company profits which has occurred since 1994. It increases the risk that companies will seek to offset higher wages by reducing employment.
Table 6.8 shows (1) the percentage composition of gross fixed capital expenditure in 1995-96 and (2) the recent growth rates of the various items of capital expenditure. It can be seen that there has been an increase in the growth rate of private investment, caused predominantly by a more rapid growth of expenditure on equipment but also by a lesser rate of reduction of investment in dwellings. Public sector investment has continued to fall.
Note: The percentage increases relate to values at 1989-90 prices. Increases to the September and December quarters of 1996 are for trend values.
Source: National Income and Expenditure: Australian National Accounts, December quarter 1996, cat. 5206.0, pp.16, 70, 74.
The Joint Governments projected a generally optimistic view of the prospects for business investment. This was based upon ABS surveys of investment expectations. [Exhibit Commonwealth 8 at p.57] The Joint Governments also anticipated a modest recovery in housing investment.
Chart 6.6, provided by ACCI, affords a longer-term perspective of private sector investment. It shows that the recovery which occurred after the recession of 1989-91 was checked in 1994. Since late 1995 or early 1996, however, there has been a renewed expansion.
The improved performance of private sector investment, especially in relation to business equipment, is perhaps the most encouraging economic indicator available to us. It is encouraging, first, because it implies a degree of confidence which may portend an increased level of activity and, secondly, because the addition to the capital stock should, over time, have a favourable effect on labour productivity. Two qualifications to this positive view should be mentioned. First, the investment in equipment may entail a substantial substitution of capital for labour. This, of course, would militate against the growth of employment. Secondly, the growth of private investment has been offset, to a degree, by a decline in public sector investment. ACCI has provided data showing that the latter has been a long-term trend. The data for public sector investment in Table 6.8 suggest that the trend continues.
Annual growth rates of gross domestic product (GDP) and gross non-farm product (GNFP) are shown in Table 6.9. Because the GDP growth rates are affected by seasonal conditions which bear upon rural output, the increases in GNFP are probably the better indicator of trends in the level of activity. Having recovered to 5.1 per cent in 1994-95 (by comparison with 1993-94), the growth rate of GNFP has since declined to below 4 per cent. This reduction is, of course, closely related to the lesser growth rate of employment and the stagnation of unemployment noted earlier in this section. The decline to 2.5 per cent in the December quarter of 1996 (by comparison with one year earlier) is a further cause for anxiety.
Period |
Increases (%) in GDP and GNFP at 1989-90 Prices | |
Year to: |
GDP(A) |
GNFP(A) |
1991-92 |
0.7 |
1.0 |
1992-93 |
3.1 |
3.0 |
1993-94 |
4.4 |
4.5 |
1994-95 |
4.1 |
5.1 |
1995-96 |
4.1 |
3.5 |
Trend data -year to: |
||
March 1996 |
4.4 |
3.6 |
June 1996 |
4.3 |
3.7 |
September 1996 |
3.7 |
3.3 |
December 1996 |
2.7 |
2.5 |
Source: National Income, Expenditure and Product: Australian National Accounts, December quarter 1996, cat 5206.0, pp.65, 67.
The Mid-Year Economic and Fiscal Outlook (a statement by the Commonwealth Treasurer and Minister of Finance), published in January 1997, contains revised forecasts of economic conditions. It states:
"The economic outlook remains favourable. Growth in GDP of 3½ per cent is expected in 1996-97, unchanged from that forecast at budget time, accompanied by moderate, but continuing employment growth, and low inflation. The composition of growth is now expected to be a little different with stronger business investment and an easing in private consumption relative to budget time. Forecast employment growth is unchanged from budget time." [p.1]
Employment in 1996-97 is predicted to be 1½ per cent higher than in 1995-96. Forecasts for 1997-98 are that the GDP will increase by 3½ per cent and employment by 2 per cent. These predictions were issued before the publication of the national accounts for the December quarter of 1996.
A significant reduction of unemployment requires an acceleration of economic growth relative to rates recently achieved and currently forecast.
We here briefly consider concerns raised by parties about the ability of particular sectors to sustain award wage increases having general application. We immediately record our opinion that, in considering economic aspects of the ACTU wage claim and counter-proposals of the Joint Governments, ACCI and the Joint Employers, the issues discussed earlier in this Chapter are of primary importance. We recognise that a general increase in award wages does not affect all employers equally. An important reason for this is that the incidence of formal agreements and over award payments is uneven. Evidence presented by ACCI, which we discuss in Attachment F, suggests that the average increases which would result directly from the success of the ACTU percentage adjustments claim would range from 0.9 per cent in manufacturing to 7.3 per cent in retail and wholesale services. These increases relate to award dependent employees and reflect the disparities between sectors in over award payments. There is more scope for absorbing award increases into over award payments in manufacturing than in retail and wholesale trade. Likewise, enterprises whose employees are mostly covered by formal agreements will be less affected by increases granted by us than those whose employees rely on awards. It is inevitable that wage increases directed to assisting workers on award wages, or receiving little more than award rates, will have a greater effect on their employers than on others.
Evidence and arguments were put to us by the NFF about the state of rural industries. It attached to its written submission [Exhibit NFF 1] the most recent Australian Bureau of Agriculture and Resource Economics Overview of broadacre and dairy industry performance. This provides the following sectoral estimates of average business profits per farm in 1996-97:
$ | |
Wheat and other crops |
95,600 |
Mixed livestock-crops |
31,700 |
Dairy |
3,700 |
Sheep-beef |
-4,600 |
Beef |
-16,400 |
Sheep |
-23,500 |
The NFF, referring to the contribution of wheat to overall per-farm profit realised in 1995-96, said that "for this current year already we have seen a 30% fall in the price of wheat and therefore we do not expect the position necessarily to be quite as strong at the end of this current financial year" [Transcript p.735]. The NFF stressed "the profound linkages between agriculture and the rest of the economy". These operate in both directions. Success of the ACTU wage claim, even if agriculture were exempted, would have a "substantial adverse effect on the sector", while a shock to agriculture would be "felt throughout the economy because labour force figures underestimate the total agricultural workforce" [Exhibit NFF 1, pp.13 and 14].
The NFF does not seek a reduction in wage rates, but opposes the ACTU wage claim:
"In return for moderation, we expect moderation. The ACTU claim, which would increase rural award rates by 14.4% in the first year, rising to 37.38% in the third year, is clearly not moderate. Consequently, and in the light of the economic situation of the industry ... agriculture has not the capacity to pay and therefore will not pay such an increase." [Exhibit NFF 1, p.12]
The NFF's proposals for the outcome of this case include a "recommendation" that any increases "not be applied to agriculture due to the uncontradicted evidence before the Commission of the dramatic adverse impact such increases would have on employment and incomes in the farm sector". The "uncontradicted evidence" to which the NFF refers is, apparently, a statistical analysis of the effects of granting in full the ACTU wage claim (interpreted as requiring increases of more than 8.75 per cent in agriculture). As the wage increases which will flow from this decision are well below those sought by the ACTU, we do not think it necessary to consider whether any relief should have been accorded to agriculture had the claim been granted. We do not exempt the rural industries from the increases which we do grant. It appears that rural employers typically pay at or near the award level; and some major rural awards still provide for 40-hour working weeks. We do not think that further relief from labour costs, in the form of special award rates, is appropriate.
We also received submissions about the likely effects of the ACTU wage claim, if granted, on the retail motor industry. These submissions were made by the VACC and the TACC (jointly) and by the MTA-NSW and the MTA-SA (jointly). They were supported by the results of membership surveys and, in the case of the VACC and the TACC, by three affidavits. (One of the deponents also gave oral evidence.) The retail motor industry comprises businesses associated with the sale, distribution, repair, maintenance, service and parking of vehicles (including service stations). Businesses in the industry include franchisees, lessees, commission agents, sole proprietors, partnerships and incorporated businesses. They are typically small. The submissions argue that the conditions under which these businesses operate limit severely their ability to pay wage increases. For example, the VACC and TACC submitted:
"Approximately 90% of respondents indicated they could not absorb the cost of the living wage claim. Competitive pressures, and the inability to pass on to the consumer operating costs, are the main reasons why small businesses cannot absorb substantial wage increases. This is consistent for the Victorian metropolitan/country areas and in the State of Tasmania. Many small businesses, such as service stations, are required to sell fuel at a discount rate and therefore, cannot simply increase the cost of petrol to offset any substantial increase in operating costs. Similarly, repair shops cannot pass on increases to the consumer as they are reimbursed by insurance companies (a fixed hourly rate) and are rarely adjusted for increases in wages." [Exhibit VACC-TACC 1, p.14]
The submissions and evidence suggest that many employees are paid at award rates. Over award payments, where they exist, serve the business objectives of the employers concerned, who would often be reluctant to absorb award increases into them.
The view of the bodies representing the retail motor industry is that the ACTU wage claim should be rejected. The MTA-NSW and the MTA-SA expressed a preference that there be no wage increase "during these very difficult times"; but they added:
"Provided the Commission applies safety net increases to award wages as outlined within our submission and provided this Commission considers that a safety net increase is sustainable our Associations will support a safety net increase.
Any safety net increase should not apply until a time after the conclusion of the existing principles and not sooner than eighteen months after the previous third safety net increase applied to awards. This will give businesses an opportunity to factor in predetermined increases. Alternatively, any safety net adjustment would operate award by award prospectively by two months from the date of an individual Commission member's decision to vary an award. This will provide time for employers to factor in clearly determined increases through dealings with clients, franchisers and suppliers. Prospective increases are important tools for small business in seeking to reduce the effect of such increases and we submit that this principle should be incorporated within this Commission's wage fixing principles.
The amount of any increase should be no greater than the previous safety net adjustments and as stated should apply only to award wages. It is evident that with lower inflation, and reduced interest rates there is sustained relief on worker budgets.
It is our submission that a safety net increase of not greater than $8.00 is in keeping with the objects of the proposed Workplace Relations Act." [Exhibit MTA 1, p.26]
We have found helpful the information provided to us by the retail motor bodies about the perspectives of small businesses on the conditions under which they operate, employment and wages. We accept that large wage increases would, in various ways, render their lot more difficult. For example, they might complicate the task of financing recurrent operations. There was, perhaps, in the submissions and supporting evidence, an insufficient recognition of the difference between a change (such as a wage increase) which affects a single business within an industry and one which applies to the industry at large. Thus some of the fears of employers, as reported to us, seem more relevant to a wage increase from which their competitors would be exempt than to one of general application. The representatives of the retail motor industry have argued a case for a cautious approach to an increase in award wages. Our own analysis, though for somewhat different reasons, points to a broadly similar conclusion.
The principal finding to emerge from the examination of economic data in Chapter 6.5 is the failure of the economy in recent years to sustain a growth rate sufficient to reduce unemployment or even to prevent an increase in under employment (associated with the decline in full-time, relative to part-time, employment). There is a question (which we cannot resolve) whether the inadequacy of the growth rate of the economy is due to forces bearing on demand for output, by supply-side constraints, or by both. The topic is one for careful research and not for casual theorising. No answer is likely to be convincing unless it accounts for the break in the momentum of recovery which occurred some two years ago. Notwithstanding an improved productivity performance (at least until quite recently) and a seemingly favourable outlook for investment, the available data and official forecasts warrant little or no optimism about an acceleration of growth such as would cause a significant reduction of unemployment. We are unwilling to grant wage increases which might, directly or indirectly, obstruct an increase in the growth rate and even create a risk of further deceleration.
The ACTU wage claim, through its direct and indirect effects, would add substantially more than 2 per cent to AWOTE. Its impact on the growth rate of AWOTE would depend upon matters of timing; but it is reasonable to believe that within a year AWOTE would rise by well over 2 per cent. This is in addition to increases generated by other causes. Even when allowance is made for the component of current growth in AWOTE which is due to past award increases, success of the ACTU wage claim in this case would entail a growth rate of AWOTE (above 6 per cent) well in excess of the current inflation rate. It is reasonable to think that the inflation rate would rise to a significantly higher level unless the monetary authorities took corrective action. That action would adversely affect both the growth rate of the economy and the level of unemployment.
It will generally be true, as it is now, that lower rather than higher wage increases are accommodated with less difficulty and impose less strain on macro-economic management. There are, nevertheless, reasons why wage increases should be granted. We discuss some of them, in a wider perspective, in Chapter 6.4 and Attachment H. At present, the factor of greatest concern is the deterioration which has occurred in the relative position of workers who depend on award rates, especially the low paid. Were we to focus our attention purely on AWOTE, we might think that the current growth rate of wages was adequate in relation to the rate of inflation. It is because award wage-earners have not fully participated in the growth of earnings that we propose to grant a further increase in award rates.
The amount of that increase is constrained, however, by the need to limit the addition to AWOTE. We have noted the Reserve Bank's intimations of the order of increase which, in its view, accords with its inflation target. Any increase greater than the amount which we grant carries a risk, in our view, of leading to a rise in interest rates. In the current state of the economy, with a high and seemingly stationary unemployment rate and an inadequate growth rate, we are unwilling to take that risk.
The addition to award wages which we grant will be sufficient, if current expectations of inflation are accurate, to avert any reduction over the next year in the real wages of employees in low to middle-level classifications. We regret that we cannot now go further. For the future, much depends upon the effect on bargaining outcomes of a transition from an inflationary to a non-inflationary environment. If past outcomes have been fuelled by "going-rate" notions which belong to an inflationary world, there is a prospect that the progressive recognition of the new, non-inflationary environment will lower the level of settlements so as to leave "space" for a more generous treatment of workers fully or substantially dependent on award wages. Unless this occurs, the Commission may be faced with either accepting the growing disparity between wage levels in the two sectors or seeking to reduce the disparity in a manner which might prove incompatible with national inflation and employment objectives. Neither course commends itself to us.
In performing its functions under Part VI, the Commission is required, in establishing and maintaining a safety net of fair minimum wages and conditions of employment, to have regard to the factors set out in s.88B(2) which, for the purposes of this Chapter, include:
"(2) (a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;
...
(c) when adjusting the safety net, the needs of the low paid.
While the ACTU wage claim is for a general award safety net adjustment, there was nevertheless a significant focus on the needs of the low paid when presenting the claim both in written form and orally - hence the ACTU's description of its claim as being for a "living wage".
Many of the parties made submissions about the approach adopted by the Commission and its predecessors in considering the needs of the low paid in the context of prevailing living standards when fixing rates of pay in federal awards. These submissions examined decisions by federal tribunals over a long period of time, commencing with the decision of Higgins J in Ex parte H.V. McKay (the Harvester decision) [(1907) 2 CAR 1]. Some of the submissions drew attention to the unwillingness of the federal tribunals to establish fixed criteria to evaluate needs and living standards when setting minimum award wage rates. These submissions highlighted what was said to be a flexible approach followed by the tribunals in the balancing of needs with economic and industrial factors in wage fixation.
The first attempt at establishing a wage based upon needs, below which no worker should be expected to live, occurred when Higgins J, President of the Commonwealth Court of Conciliation and Arbitration, in 1907 said in the Harvester decision that a "fair and reasonable" wage for an unskilled labourer would be based on "the normal needs of the average employee, regarded as a human being living in a civilized community" [at p.3]. The rate determined was based on the households of unskilled labourers, after taking into account the household expenditure costs covering the "modest requirements of the worker's household". The wages required by a worker to live in a civilised community were described by Higgins J in a later decision as the "living wage" which ultimately became known as the "basic wage".
In 1919 the government established a Royal Commission (the Piddington Royal Commission) for the purpose of inquiring into the actual cost of living [Report of the Royal Commission on the Basic Wage, Commonwealth Parliamentary Papers, 1920-21, Vol. IV] and in 1922 the Court introduced the system of automatic quarterly cost of living adjustments. Inquiries into the basic wage were held over the subsequent decades until the Commission abolished the basic wage as a component of wages in the 1967 National Wage Case [(1967) 118 CAR 655]. In its 1967 decision the Commission introduced the system of expressing wages as total wages, but retained a minimum wage. The adjustment of the minimum wage ceased in the 1970s, however, and its relevance to contemporary standards thereafter declined.
In the March 1987 National Wage Case decision [10 March 1987; Print G6800] the Commission decided to give "positive attention to the position of lower paid workers" by means of supplementary payments. As a result of a series of decisions by the Commission in National Wage Cases, commencing with that decision, the Commission adopted a number of principles which had a bearing on the position of low paid workers. Those principles, subject to amendments, continue to guide the Commission in its wage fixing today and include consideration of both community living standards and the needs of the low paid.
The various parties to the proceedings (including a number of organisations intervening) made submissions on the approach the Commission should adopt in determining the ACTU wage claim having regard to "living standards generally prevailing in the Australian community" and (when adjusting the safety net) "the needs of the low paid". A number of organisations involved in the social welfare sector were granted leave to intervene in the proceedings. We were particularly assisted by the submissions of ACOSS and the Brotherhood of St. Laurence in relation to the twin concerns of identifying low paid workers and meeting their needs through the wage fixing process.
ACOSS, in its written submission [Exhibit ACOSS 1], stated that the relationship between wage fixation and public income support had become more important and more complex over the past two years. The growing importance of this relationship was due to both a sharp increase in wage inequality and a trend for householders to rely less on male full-time wages alone and more on the combined earnings of male and female members of the household and combinations of wages and income support. While increased participation in the workforce by females had reduced overall income inequality, the division between families drawing two wages, one wage and no wage at all had widened and, in the process, had raised the benchmark for average family living standards.
In the submission of ACOSS, the trend towards enterprise bargaining outside the award system and the resultant inequality of market outcomes had meant that "the relative living standards of low income Australians cannot continue to be protected without a significant strengthening of minimum wage fixation and social welfare policies". Labour market changes had "divided Australian society into winners and losers, in a contest to secure decent material living standards". The main winners were those in relatively secure full-time employment (mainly prime age males), executives and highly skilled workers, and households with access to two wages, especially full-time wages. The losers were those who had not succeeded in breaking into career employment (mainly young people with limited qualifications and married women), low skilled workers generally and households of working age that were not drawing wages or receiving very low wages only (mainly unemployed or sole parent households) and those whose main breadwinner was a low wage worker. [Exhibit ACOSS 1, p.14]
Despite the growth of wage inequality, ACOSS said Australia still had a relatively equal distribution of full-time earnings. An explanation for this "lies in our unique award system and the efforts of the industrial tribunals and parties to ensure that effective minimum wage rates do not fall too far behind movements in average wages". More such intervention was now required:
"The shift over the past 6 years towards decentralisation of wage bargaining outside the award system is the most fundamental change in the Australian industrial landscape in the last 90 years. It would be naive to believe that this has no major implications for wage relativities and low paid workers. Together with the sweeping changes in the structure of the labour market outlined above, this highlights the need for new and more effective arrangements to prevent low paid workers, especially those who are too industrially weak to benefit from enterprise bargaining, from falling behind." [p.15]
The submissions of The Brotherhood of St. Laurence [Exhibit Brotherhood 1] were based on an examination of publications, both from Australia and overseas, together with a series of group interviews with "low paid" workers. Of the full-time workers interviewed, one third were living "below or near the poverty line". The Brotherhood referred to "a growing dispersion of market incomes, particularly wage and salary incomes which make up approximately 70 per cent of all income in Australia". It acknowledged that the effects of the growing dispersion of labour incomes had been mitigated by developments in "the social wage" [p.20]. There was a "general consensus" among researchers "that the social wage has played a very important role in holding back the rising tide of inequality" [p.24]. Nevertheless, the Brotherhood saw the wages system as an important determinant of the incidence of unmet need:
"The extent to which waged poverty exists in Australia may be a matter of dispute, although there can be little doubt that it does exist, as the workers interviewed testify and as broader studies have indicated ... Even with the AIRC's current commitment to safety net increases, there are workers who are working full-year, full-time who are living on or near the poverty line ... Further erosion of these workers' wages and conditions relative to other workers can only be prevented through the retention and improvement of minimum award rates, in conjunction with increased investment in education and training." [pp.81-82]
The ACTU said that its claim had been developed as a process to address issues of income adequacy for low paid and vulnerable workers covered by federal awards. A number of the unions in separate submissions stated that their members were low paid, with little or no access to enterprise bargaining. In some cases, particularly where the workforce was predominantly female, the wages barely covered the simple necessities of life. The relevance of the award system had to be maintained, because for many workers without access to enterprise bargaining the award rate was the actual rate of pay. Unions placed before the Commission witness statements from a number of members of the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU), the Shop, Distributive and Allied Employees Association (SDA), the Australian Liquor, Hospitality and Miscellaneous Workers Union (ALHMWU) and the Textile, Clothing and Footwear Union of Australia (TCFUA) employed under the following awards:
· Metal Industry Award;
· Shop, Distributive and Allied Employees Association - Victorian Shops Interim Award 1994;
· Child Care Industry (Australian Capital Territory) Award, 1992; and
· Clothing Trades Award 1982;
in the classifications of C11 process workers, shop assistant, room attendant, drycleaner and child care worker level 1. Their gross wages ranged from $290 per week to $470.10 per week. The witnesses were having varying degrees of difficulty in meeting the cost of living and all regarded themselves as low paid. Evidence was also tendered by the Australian Education Union and the Independent Education Union of Australia [Exhibit AEU & IEU 1] about the difficulties of low income families in meeting expenses of schooling. This evidence included an affidavit of an employed sole supporting parent who testified about the difficulties which she experienced, for financial reasons, in allowing her three children to participate fully in school activities. Another affidavit was sworn by the principal of a Catholic school in a low-income area. This also described the problems of parents in meeting expenses related to their children's school attendance.
New South Wales submitted [Exhibit NSW 1] that the Commission should regard as low paid those workers who received "no or low levels of over award payments and/or have not received increases in wages from industry settlements or enterprise bargaining".
ACCI submitted that while the Commission has recognised the needs of the low paid in wages decisions, it has also recognised that these needs are met by a combination of wages and assistance provided through government policy. The Commission should not attempt to define precisely who the "low paid" are, but should accept that they are at the lower end of the award classification structure. ACCI stressed the relative character of conceptions of poverty. It was critical of the ACTU and unions' inferences from the evidence adduced by them:
"In the data it has provided, all that the ACTU has demonstrated is that there is a wages distribution in that some people are paid more than others. The ACTU has also demonstrated beyond disputation that those who earn higher incomes are able to enjoy a higher standard of living". [Exhibit ACCI 8, Section 1 p.1]
ACCI, having commented on various aspects of the ACTU and union evidence, said:
"No matter what you do, unless you can somehow devise some way to pay everyone exactly the same there will be some individuals who will earn less than other individuals. Those who earn less will continue to have a lower standard of living relative to those who earn more. But to pretend we are dealing with poverty is to trivialise what actual poverty is.
There are, without question, some very poor people in this country, but very few of them are to be found in families in which there are working individuals. Having a job is the greatest protection against poverty. Certainty of continuing at a job is an even greater barrier to poverty." [p.7]
The NFF said:
"In our view the ACTU has not substantiated the argument that a subclass of working poor is developing in Australia ... [T]here will always be some workers earning less than others and indeed that is likely to be a healthy part of our economy, not the opposite. If there is indeed a subclass of poor developing in Australia it is the unemployed and in our submission it is no solution to that problem to make it worse by increasing wages". [Transcript p.747]
The NFF could find "no evidence in the ACTU submission that wages at their current levels are not fair and just already". [Exhibit NFF 1, p.5]
The Commission is obliged, under the new Act, to have regard to equity factors when considering the needs of the low paid. In that respect, s.88B(3) relevantly states:
(3) In performing its functions under this Part, the Commission must have regard to the following:
....
(d) the need to apply the principle of equal pay for work of equal value without discrimination based on sex;
(e) the need to prevent and eliminate discrimination because of, or for reasons including, race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin."
The ACTU submitted that granting its claim would be of significant benefit to women and would facilitate equity in remuneration. The claim was important to the achievement of these outcomes because:
· women have less access than men to over award payments;
· access to enterprise bargaining is less in industries where female employees are concentrated than in other industries; and
· some recent evidence suggests that women might be achieving less money from enterprise bargaining than men.
HREOC and WEL strongly supported the ACTU's submission in this regard. HREOC further submitted that the Commission should develop principles in order to implement fully the principle of equal remuneration for work of equal value. It requested that the Commission carry out an inquiry in order to assist in the removal of gender based differentials in awards. WEL also argued that such differentials continue to exist in awards and should be dealt with.
It is generally accepted that within the low paid award dependent group there is a disproportionate number of women. In reaching our decision, we have had regard to this consideration. Further, we are satisfied that the method of implementation of our decision will not exacerbate discrimination and may, indeed, curb it through the absorption of over award payments in whole or in part.
We note, as did the ACTU, that ss.170BA to 170BI of the new Act provide for the processing of claims concerning equal remuneration for work of equal value. A number of such claims have in fact been dealt with, and resolved, under the auspices of the Commission. Any statement of principle about equality of remuneration for work of equal value is, in our view, a matter to be resolved in the context of applications made pursuant to these provisions. In respect of HREOC's proposal that the Commission conduct "an inquiry into work value with emphasis on establishing ... processes for investigation which are free from gender bias", we note that in the October 1995 decision the Commission refused another HREOC request for an inquiry. It said that " ... the Commission is not a regulatory body" and is obliged "to deal with applications in accordance with the provisions of the Act" [p.78]. If parties make appropriate applications in respect of these matters, they will be dealt with under the provisions of the new Act.
In Chapter 7.3 we outlined the views of various parties about the existence and nature of any problem of need among the low paid. We turn now to the parties' contentions about the proper response of the Commission to its statutory duty to have regard to the needs of the low paid when adjusting the safety net. It is fair to note that the parties were generally conscious that there were other criteria to be taken into account. In particular, they recognised that the Commission's decision would be affected by economic considerations. We do not here refer, except incidentally, to their comments on these other matters.
ACOSS made detailed submissions about "benchmarks for assessing the adequacy of wages" [Exhibit ACOSS 1, pp.16-31]. It properly acknowledged the dearth of research "that thoroughly compares the actual living standards of people on different wage levels". An existing benchmark, the Henderson Poverty Line (HPL), yields some useful information about the incidence of poverty in Australia, but "it would not be appropriate to use the HPL as the primary benchmark for setting minimum wages, as the community expects full-time wages, together with income support payments where appropriate, to provide a standard of living significantly above `poverty' levels." ACOSS did offer a view about the nature of the household unit to be considered.
"...[I]t would be inappropriate to use a family with children as the primary benchmark for a `living wage' in the 1990s. Rather, the above evidence suggests that it should be primarily designed to provide an adequate standard of living for a single adult without children. However, consideration should also be given to the impact of the `living wage' claim, in conjunction with income support payments and tax concessions, on low income families with children."
ACOSS supported an "integrated" approach to protecting the relative living standards of low wage earning households:
"This means that the wages system should provide an adequate `floor' which, along with the income support and taxation systems, should ensure that they do not fall behind movements in general community living standards." [p.44]
Because no existing benchmarks seemed appropriate to the general criteria which it favoured, ACOSS proposed that the Commission conduct an inquiry during the next 12 months "in order to assist it to develop an appropriate benchmark that is sufficiently robust and capable of attracting widespread community endorsement" [p.45]. The immediate issue was "how to ensure that the wages paid to low paid workers on award rates do not fall behind increases in prices and current wage movements within the enterprise bargaining stream" [p.44]. ACOSS considered "that the majority of workers below the median, which is about $28,000, must benefit by at least movements in [AWOTE] and that would be significantly in excess of the $8 recommended by the Commonwealth Government" [Transcript p.695].
The Brotherhood of St. Laurence's submission does not point toward specific benchmarks or wage outcomes. Its thrust, rather, is that the protection of the low paid necessitates centralised intervention in wage-setting; for decentralised processes will not protect the low paid against forces which generate greater inequality. The Brotherhood submitted:
"...[T]he Brotherhood supports the notion of a living wage ... We believe that there is an important role for the Industrial Relations Commission in determining adequate wage levels on the basis of changes that have been mentioned to the Commission by the Australian Council of Social Service and others - changes in workforce participation patterns and family structure. We cannot have a living family wage. We would need to base it on the needs of a single worker, which is not to say we should not have concern about what is happening with families. We believe it would be best if such a living wage was linked to the award system because the award system has provided protection for workers in the past. We would be concerned about a minimum wage that was not linked to community movements and its potential for being eroded over time, but however we do not have a degree of expertise in this matter and we point that out to the Commission" [Transcript p.974].
The ACTU asked the Commission "to state as an underlying norm, in fixing award rates of pay, a standard that is sufficient to a worker to participate in and belong to Australian contemporary society". [Exhibit ACTU 5, section C, p.11] A broad range of criteria was relevant to this standard. One of them was "the normal needs of low-paid workers and the adequacy of award wages (as a prime source of household income) in meeting those needs". The ACTU's argument, as we understand it, does not lead to a benchmark of adequacy of award wages but seeks to persuade us that wage increases of the order sought by the ACTU are now necessary to reduce the extent of unmet need among wage earners.
One element of the ACTU's argument was based on an analysis of data derived from the ABS 1993-94 Household Expenditure Survey. We do not propose to recount in detail the ACTU's analysis. As the ACTU observes, the data show that expenditure tends to rise with household income, but less than proportionally. In lower income quintiles, expenditure (on average) exceeds income, whereas for higher quintiles income exceeds expenditure. It is likely, as the ACTU suggested, that at higher incomes there is a greater opportunity to save, just as there is greater scope to buy goods and services: the differences in expenditure and saving are simply the consequences of unequal incomes and, as it seems to us, throw little light on actual or unmet need.
The ACTU argued, however, that the impact of the low pay was demonstrated by "qualitative" research. It referred to a "Focus Group" inquiry into the circumstances of persons in Sydney and Melbourne which depicts the difficulties experienced by these people in meeting their commitments from their incomes (not all of which would be described as "low"). Similar inferences might be drawn from the witness evidence noted in Chapter 7.3. Whatever may be said of the value of the qualitative evidence - and it was criticised during the case - we have no difficulty in accepting the broad finding that people on low incomes lead more trying lives than those who receive more. The qualitative evidence also shows, however, that wage levels are by no means the only determinant of the degree of difficulty which employed people and their dependants experience.
A further aspect of the ACTU's submission was a comparison between wage levels and the HPL [Exhibit ACTU 5, section C, pp.130-136]. For this purpose, the ACTU converted the classification rates for C10, C11, C12, C13 and C14 in the Metal Industry Award into post-tax amounts. No additions were made in respect of social welfare benefits. The comparison shows that the award rates would leave some income units below the HPL. For example, the net wage of a person employed at the C13 award rate is $329. This far exceeds the HPL ($231.86) for a single person in the workforce. For a couple with the head in the workforce, the HPL is $310.16. If there is one child, however, the HPL for a couple (with head in the workforce) is $372.83. The post-tax wage exceeds this last amount at C10, but not at any lower classification. These examples illustrate the interrelation of need and family composition and the difficulty of relating wages to measured need.
HREOC said that it would make "no submissions on the specific amounts sought by the ACTU for the poorest of Australian wage earners" [Exhibit HREOC 1, p.2]. Australia was, with many other countries, becoming more unequal and was witnessing the rise of the "working poor", many of whom were "women, non-English speaking background (NESB) workers, Aboriginal and Torres Strait Islander people, people with disabilities and young people". HREOC as one of its recommendations proposed that "the AIRC ensure that minimum rates across awards are increased to protect the poorest of Australian wage earners in an increasingly deregulated industrial environment, and in order to uphold Australia's national and international commitment to social justice and equity" [p.8].
AYPAC (which represents young people) submitted that "the elimination of poverty is a central issue under consideration in this case" [Exhibit AYPAC 1, p.3]. The award system "should provide people, regardless of age, with a minimum living income sufficient to provide them with a fair, decent and reasonable standard of living with which they can pursue active participation in Australia's economic, political and social development".
In the submission of the Joint Governments, the ACTU's Living Wage claim "is based on the premise that workers on low rates of pay do not enjoy an adequate standard of living and that the best way to alleviate this situation is to provide them with large award-based wage increases" [Exhibit Commonwealth 8, p.104]. The needs of the low paid were "a factor to be considered in adjusting the award safety net", but the Commission "should adopt a cautious approach" [p.103]. In the absence of a social safety net, the Commission would need to consider how "to estimate or quantify [the] overall living needs" of award wage earners, particularly those on low rates. Inclusion of award employees in the social safety net meant, however, "that the Commission is relieved of any obligation that might otherwise be thought to exist that it should attempt its own overall estimation of ordinary living needs". That task should be handled through the processes underlying the social safety net, which "addresses the needs of all low income people, including people on low award wages".
The Joint Governments were not arguing that the degree of protection afforded by the social safety net was itself a factor for the Commission to take into account: "That type of approach would be calculated to lead to perpetual difficulties as the relationship between the level of the social safety net and minimum award wages is not a fixed one and realistically could never be treated as though it were fixed." In directing its approach to the needs of the low paid, the Commission should remember the diversity of circumstances such as income, assets, housing and families:
"By its very nature the award system is an instrument which does not and cannot target the diverse needs of workers. Attending to that diversity is part of the role of the wider social safety net which is highly targeted to address the diversity of circumstances affecting people." [p.104]
The Joint Governments sought to support this submission by a description of social welfare benefits now available. Their proposal of an $8 per week increase in award rates, subject to a cut-off at AWOTE and full absorption of over award payments, appears to be made in response to the statutory reference to the needs of the low paid as a relevant factor in adjusting the award safety net; but it does not presume either an identification of those needs or any judgment that they are not at present met adequately.
The State of Western Australia (Western Australia), though a party to the Joint Governments' submissions, made a separate submission describing the approach of the Western Australian Government in establishing a needs-based minimum wage for employees not subject to federal awards and agreements [Exhibit WA 1; Transcript pp.981-987]. Under the Minimum Conditions of Employment Act 1993 (WA) (the MCE Act), provision is made for certain minimum conditions to apply to all employers and employees under State awards, enterprise bargaining agreements, workplace agreements and contracts of employment. A term of any of these instruments which is below the standard prescribed under the MCE Act has no effect. Minimum rates of pay for full-time, part-time and casual work are set by a method prescribed in the Act. The Western Australian Industrial Relations Commission (WAIRC) reviews annually the minimum weekly rate of pay and makes recommendations to the Minister, who determines the rate by either accepting the WAIRC's recommendation or setting a different amount.
Professor David Plowman of the Graduate School of Management in the University of Western Australia, has twice advised the Minister about the appropriate level of the minimum wage. For the purpose of his 1996 advice, Professor Plowman (with Professor John Taplin and Dr John Henstridge) prepared a report entitled Determining the Minimum Wage: a Household Expenditure Approach. A copy of this report was attached to Western Australia's written submission. The stated purpose of the study underlying the report was to identify the expenditure associated with meeting the "reasonable needs" of an unskilled adult worker living alone. In making this analysis, the authors of the report used data of actual expenditure derived from the ABS Household Expenditure Survey for 1993-94. Certain items of expenditure were excluded as either "not reasonable living items" or "dependant related items". Multiple regression analysis was then used to "predict" expenditure on the remaining items of an unskilled adult worker living alone. Income was not one of the "predictors" used. Having derived an amount in this way, the authors adjusted it for inflation between June 1994 and June 1996. They thus arrived at the sum of $331.99 (with a confidence interval from $312.78 to $350.74). Subsequently, the Minister for Labour Relations published a weekly minimum rate of pay for adults of $332. Western Australia's submission states that the approach outlined above "has been effective in addressing the needs of the low paid". It acknowledges that "the role a single minimum wage plays in Western Australia does not currently exist in the federal system".
ACCI said that the present proceedings afforded the Commission and parties the opportunity to "recognise the role of awards as a safety net, rather than for example as a mechanism for flowing the results of enterprise bargaining to non-unionised and non-consenting employers". Equity issues should be addressed "through an appropriate focus on the needs of the low paid, recognising the limits of the Commission's power to address the needs of the lower paid and the way in which their needs are addressed through the taxation and social security systems." The opportunity existed to "commence the process of revising the minimum wage, in order to facilitate the development of an appropriate safety net and to address the needs of the low paid" [Exhibit ACCI 7, pp.1-2]. Were the Commission to reject ACCI's primary contention, that there should be no award increase, a favoured option "would be to recognise that the needs of the so-called `low paid' can only be dealt with through a carefully targeted, package approach, involving in summary a special allowance directed at their needs, and the commencement of the process of reviewing the minimum wage" [p.43]. The special allowance was described as follows: "An employee on [classifications in the range of $350-$388] shall be entitled to a weekly allowance of [eg $5] per week if the following conditions are satisfied." We do not here discuss the conditions proposed by ACCI for the granting of the special allowance. Consistent with the view outlined in Chapter 7.3, ACCI did not support wage increases as a remedy for need:
"There is a tremendous variety of needs between the various households ... A couple with dependent children has a very different set of needs from, for example, a lone person. Similarly a one parent family will have different needs from a married couple without children.
The ACTU solution is to raise award rates ... indiscriminately between households independent of actual needs. That is why, in fact, the welfare system has developed as it has. Various forms of welfare are targeted at recipients in greatest need. To raise wages takes a blunderbuss approach to doing anything about actual economic need." [Exhibit ACCI 8, section 1, p.13]
The Joint Employers acknowledged the Commission's statutory duty to "have regard to the need to provide fair minimum standards in the context of prevailing living standards and to the needs of the low paid". They then submitted:
"The exercise of discretion, however, is not about providing a `living wage' for employees in the sense that the Commission must set award rates of pay at a level that would sustain an employee and his or her family at a particular standard of living. The Commission and its predecessors ... have never sought to do that ... It is our submission that in weighing up the competing factors which the Commission is to have regard to in setting a fair minimum standard, the dominant factor is the capacity of industry to pay.
We also wish to make the point that as the Commission has itself declared `it is an industrial arbitration tribunal and not a social welfare agency' (1974 N.W. case ...). Section 88B(2)(c) requires the Commission to have regard to the needs of the low paid but not to attempt to meet them by supplanting the role of Governments in this respect." [Exhibit J 1, p.21]
The Joint Employers put nothing to us about the identification of needs and the low paid. Their proposal of an award wage increase of $8 per week (if we were to reject their submission that there be no increase) was said to be "consistent with applying the low end of the [Reserve Bank's] inflation target [of 2-3 per cent] to the award rate of C11 ($409.50) under the Metal Industry Award 1984 Part I (to the nearest dollar)" [p.13].
The BCA gave attention to the meaning of the "safety net". There was a role for "a genuine safety net in an enterprise-based, agreement-focused industrial relations system, in order to protect those whom the mainstream of the system does not accommodate". It must apply "only to a relatively small minority of employees, otherwise it ceases to be a safety net and de facto becomes part of the mainstream of wage fixation" [Exhibit BCA 1, p.8]. The safety net must refer to a level of wages, rather than an increase, and was "best characterised as a level of wage rate below which no employee must be paid". The concept of a safety net wage would best be implemented "by the Commission setting a single minimum adult wage rate, to apply regardless of the award involved for any particular employee" [p.9]. As to its amount, the BCA said:
"Given the reasons we have endorsed for having a Safety Net Wage, it is apparent that its setting can only really be based on some concept of protecting the lowest-paid employees in the nation in terms of a concept of community `needs'.
It is important not to stereotype family or lifestyle arrangements of employees, hence the Safety Net Wage should be based on the needs of an individual employee, without making assumptions about dependents. In this regard we agree with the argument included in the report prepared for setting the Western Australian Minimum Wage.
There are many ways of trying to asses what the community-endorsed minimum standard of wage rate should be. The ACTU and various of its affiliated unions have sought to do so in their submissions, but none of them is entirely satisfactory. In particular, their argument that the `living wage' should redress loss of relativity of award wage rates to Average Weekly Earnings is not germane to setting a Safety Net Wage. The Western Australian Government commissioned research to assist it in setting the level of the State minimum wage. This is a rather more intellectually rigorous piece of work." [p.10]
There were strong arguments, the BCA said, for setting the minimum wage level at about $9.19 per hour, which was the lowest level in many current federal awards. The Commission would have to make a judgment of an appropriate trade-off between raising the living standard of those who retain their employment and increasing the numbers of those unemployed beyond the level it would be otherwise [p.11].
In several other submissions, the view was put that the social objectives of a "living wage" should not be pursued through the award system but should be dealt with through the social security system.
Neither "needs" nor "low paid" is a term with a precise meaning. We are required, however, to have regard to the needs of the low paid when adjusting the safety net. The ACTU invoked this obligation in support of its Living Wage claim and the wage claim which is immediately before us. As we understand the argument, the percentage wage adjustments applicable to all award rates were justified by the desirability of increasing award rates for lower classifications without further compressing relativities. It is not clear that the $20 claim, superimposed on the percentage adjustments claim, has any direct connection with the needs of the low paid.
Although there was some diversity of opinion about the identity of the low paid, we think that there was a reasonable consensus that they at present have the following characteristics:
· their wages are not prescribed in workplace or enterprise agreements;
· their award classifications are toward the lower end of the award structure; and
· they receive no, or only small, over award payments.
Recognising the imprecision of the last two of these characteristics, we nevertheless think that the three, taken together, constitute a workable definition of "low paid". It is one that is relevant to the current industrial environment.
Turning to the criterion of "needs", we see two possible approaches:
· "Needs" may be construed simply as an adjunct of "low paid" without any further attempt to specify or quantify them.
· An attempt may be made to quantify needs and the cost of meeting them, leading to an endeavour (subject to other constraints, such as economic capacity) to ensure that wages are sufficient to provide for them.
The former approach entails a general acceptance that the standard of living available to wage-earners is related to (though not wholly determined by) the level of their wages; and that low paid wage-earners are more likely than others to experience hardship due to their limited capacity to spend. A regard for the needs of the low paid would tell in favour of safety net adjustments weighted in their favour - for example, flat rate rather than proportional wage increases. Evidence that the absolute or relative real wages of the low paid have deteriorated would count in favour of adjustments tending to correct the deterioration; and evidence of hardship among the low paid would support the Commission's giving greater weight to increasing the relative wages of the low paid than it might otherwise have given. In all cases, of course, there might be countervailing considerations, including the maintenance of career paths, the state of the economy and the objective of encouraging the making of agreements.
The latter approach is associated with benchmarks. On the material before us, we think that it entails formidable problems. First, there is a necessity to define an appropriate standard of living to which a benchmark is related. The difficulty inherent in any such definition is illustrated by the submissions made to us about the HPL. Even if the techniques used in constructing the HPL allow an accurate assessment of living standards, the question remains about the standard which is appropriate for a low paid wage earner. At what level (if any) above the HPL should the benchmark wage be set? Secondly, there is a question about the income unit for which the benchmark wage should provide: the wage-earner alone or a family of some defined composition? Generally, the parties took the view that the Commission should set wages with the single employee in mind. This view was "softened" in several instances, however, by suggestions that in fixing wages for single persons the Commission should take account of evidence of needs of families. The fact is that many wage-earners choose to use part of their wages to support other persons. Is the ability to do so any less a "need" than some of the items which the wage-earner buys for his or her own use? The Conciliation and Arbitration Commission in the 1974 National Wage Case decision [(1975) 157 CAR 293)] observed that "there are, of course, limits to which the Commission can go to the aid of the low wage-earner whose needs are magnified by family obligations" [p.299]. We agree. In our opinion, it is not desirable for the Commission to identify any family unit as appropriate for a benchmark. Finally, the benchmark approach entails the necessity of delineating the roles of award wages and social welfare. It raises the question whether award wages should be increased or reduced to offset reductions or increases in social welfare benefits (which will not affect all wage-earners identically).
The difficulty of identifying a benchmark is not alleviated, in our view, by the procedure brought to our notice by Western Australia. A minor objection to that procedure is the arbitrariness inherent in the exclusion of certain items of expenditure as inappropriate for the unskilled single adult worker. The fundamental objection pertains to the equation of "needs" with actual expenditure. If expenditure is related to income, the reasoning is inherently circular. Professor Plowman and his colleagues deny the circularity on the basis that the variables used in their regression analysis to explain expenditure levels do not include income. The expenditures of unskilled single employees are not, however, independent of the income levels typical for such persons. Hence the effects of income on expenditure, though formally suppressed, are not excluded. It is unrealistic to think that if the employees in question had higher wages they would spend no more. Whether the expenditures from their present incomes meet their needs is a question which the analysis cannot answer.
In our view, the difficulties associated with the benchmark approach are serious. Because of them, we think that the former of the two approaches outlined above is the only one which is now practical. In saying this, we do not exclude consideration of the hardships encountered by those at the lower end of the award classification structure in a system where the primary means for achieving wage increases is enterprise bargaining. We accept and are concerned by the submissions of ACOSS and the Brotherhood of St. Laurence about the social consequences of a two-tiered wage system. We discuss this issue in more detail in Chapter 6, dealing with the economic factors affecting our decision; but the point bears emphasis. Proper regard for the low paid demands some readjustment of the priorities of others. Such adjustments are not within the control of this Commission.
We have given consideration to ACOSS's proposal that the Commission conduct an inquiry with a view to developing a benchmark of wage adequacy; but we have decided not to take this course. As we have said in Chapter 7.4, the Commission is not a regulatory body and is obliged to deal with applications in accordance with the provisions of the Act. Moreover, for reasons given above, we have strong doubts about the practicality of a benchmark approach to wage fixation. By conducting an inquiry, the Commission might create a false expectation that a benchmark was likely to be established. It is, of course, open to parties in future proceedings to argue that our misgivings about the benchmark approach are ill-founded; but the onus rests upon those who advocate such an approach to persuade the Commission of its merits.
Our decision with respect to the ACTU wage claim (and some associated matters) is:
(1) to award an arbitrated safety net adjustment of $10 per week;
(2) to determine a minimum wage (to be called "the federal minimum wage") for full-time adult employees of $359.40 per week and, for junior, part-time and casual employees, of a proportionate amount. (The federal minimum wage is to be inclusive of the arbitrated safety net adjustment determined by this decision and all previous safety net and national wage adjustments.)
(3) to provide that increases under both (1) and (2) are fully absorbable against all above award payments;
(4) to provide for the variation of both minimum rates and paid rates awards;
(5) to provide that any outstanding $8 per week arbitrated safety net adjustments available under the September 1994 and October 1995 decisions be available from the same date as the $10 per week arbitrated safety net adjustment available pursuant to this decision;
(6) to provide for the commencement of award variations to give effect to this decision to occur no earlier than the date on which the award is varied, except that provision will be made for the phasing-in of increases where circumstances justify it;
(7) to permit the expression of award rates, by consent of all parties, and where the minimum rates adjustment has been completed, as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration;
(8) to provide that allowances which relate to work or conditions which have not changed and service increments be adjusted as a result of the $10 per week arbitrated safety net increase. (The method of adjustment is to be consistent with the Furnishing and Glass Industries Allowances decision [Print M9675].); and
(9) to adjourn the applications before us to a date to be fixed.
The Commission's Statement of Principles is amended to provide for the implementation of the decision, including matters of detail not included above. The amended Statement of Principles is Attachment A.
Our decision has regard to the factors discussed in the earlier Chapters, in particular, Chapter 5 - The Legal Framework, Chapter 6 - The Economic Framework and Chapter 7 - The Needs of the Low Paid. We have, among other things:
(1) referred to the need to balance the legislative requirements with respect to awards and to agreements (Chapter 5.5);
(2) expressed the view that the key factor in "a safety net of fair minimum wages and conditions of employment" [s.88B(2)] is fairness (Chapter 5.6);
(3) expressed the view that the award system, as it exists from time to time, will remain the safety net of fair minimum wages (and conditions of employment) (Chapter 5.6);
(4) considered the cost of the ACTU wage claim and counter-proposals to it (Chapter 6.2);
(5) considered the effect of wage increases on employment (Chapter 6.3) and the relation between wages, prices and productivity (Chapter 6.4);
(6) examined the living standards and the needs of the low paid in determining the nature and amount of the award increases, within the constraints imposed by economic factors (Chapter 7).
Our decision is made in the context of the present wages system in which the making of agreements between employees and employers at the workplace or enterprise is the prime method of regulating wages. This system has had, and at present has, the general support of the industrial parties and the Federal and State Governments. An important aspect of the system is that, in recent years, the Commission has, in general, had no power to refuse to formalise an enterprise or workplace agreement for public interest considerations. An outcome has been that employees who are covered by enterprise agreements are paid more than comparable employees who are covered by awards, and generally the magnitude of this difference has increased with the passage of time. As the system (which is continued by the new Act) has developed, there has been a marked shift away from the previous centralised system of wage fixation. Information before us shows that under the federal system at present about one-third only of employees are award wage-earners. In 1994 the proportion was about one-half and in 1993 about two-thirds.
While the numbers dependent on awards are likely to decrease further, a diminishing, but still substantial, sector of the workforce remains dependent upon awards for increases in wages. Many of those who rely upon awards to achieve wage increases (and improvements in conditions of employment) are employees in the textile, clothing, footwear, childcare, agriculture, hospitality, cleaning and retail industries (or parts of these industries) and many such employees are from non-English speaking backgrounds and/or are low skilled employees. There is, within this group, a disproportionate number of women.
The ACTU, in advancing its wage claim, relied on the gap between award wage levels and agreement wage levels. In its submissions-in-reply, it referred to two different systems, an award system and an agreement system. This matter was the subject of the following exchange between the Bench and Ms S. Jones, for the ACTU:
"HANCOCK SDP: So the ACTU's view, I take it, is that there are now two discrete worlds, the world of enterprise bargaining and the world of award wages, and there is very little commerce between them.
MS JONES: In terms of the outcomes in the levels, yes, that is right. There is, of course, a no disadvantage test, we have never denied that, that makes the connection through the legislation. But yes, that is the point we wish to make." [Transcript p.1197]
It was always implicit in the enterprise bargaining system - and presumably recognised by parties at the time of its adoption (all of whom supported its adoption) - that a gap would arise between the wages of bargainers and non-bargainers. If that gap is seen as being, or becoming, too wide it is our view that the best prospect of correcting the situation is a moderation in the levels of claims and settlements in enterprise bargaining. As we said in Chapter 6.7: "If past outcomes [with respect to bargaining] have been fuelled by `going-rate' notions which belong to an inflationary world, there is a prospect that the progressive recognition of the new, non-inflationary environment will lower the level of settlements so as to leave `space' for a more generous treatment of workers fully of substantially dependent on award wages."
We have decided that the arbitrated safety net adjustment should be a flat money amount rather than a percentage increase. We have so decided having regard to the economic need to limit additions to AWOTE and so that the available funds give a proportionately higher benefit to the low paid.
We share the concerns expressed by a number of the parties about the difficulties faced by employees who are at the lower end of the award wages scale. Some of the hardships being experienced by these low paid workers were described in witness statements of union members and in other material presented to us. This material shows that many employees with a low income (and their dependants) are having great difficulty in meeting their needs and participating fully in the life of the community.
The needs of low paid award wage-earners, however, cannot be met solely by the Commission's establishing and maintaining a safety net of fair minimum wages and conditions. There are many factors apart from wages which determine the living standards of such employees. They include private circumstances, the level of assistance provided by income support programmes, the taxation system and other government social initiatives.
The evidence concerning the difficulties faced by many award wage-earners was one of the factors which led us to conclude that an adjustment in award wages is necessary. This evidence has also led us to provide proportionately greater assistance to the low paid by awarding a flat money increase, rather than a proportional increase, to award rates. If the needs of the low paid were the only consideration bearing upon our decision, the flat rate increase would be greater.
Under s.88A(d) of the previous Act, an object of Part VI, Dispute Prevention and Settlement, was to ensure that regard was had to relativities "based on skill, responsibility ... and on the need for skill-based career paths". There were a number of submissions before us as to whether the new Act required the Commission to have regard to such relativities.
The ACTU argued that the Commission has a discretion under s.89A(2)(a) of the new Act to make and to vary both minimum and paid rates awards in respect of "classifications of employees and skill-based career paths". The ACTU also relied on s.88B(3)(a) of the new Act, which requires the Commission, in performing its functions under Part VI, to have regard to "the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed". The ACTU submitted that, on merit, the Commission should award a percentage adjustment to all award rates in order that the integrity of the award classification skill structure is maintained.
The Joint Governments submitted that the omission of s.88A(d) of the previous Act from the new Act demonstrated that the maintenance of relativities within awards was not expected to be a feature of the award safety net under the new Act. Matters associated with classification relativities should be left for determination by the parties at the enterprise level. In any trade-off between assisting the low paid and maintaining internal award relativities, the former should be given considerably more weight than the latter.
The Joint Employers, in proposing an $8 per week increase as an alternative to their primary submission that no increase should be awarded, accepted that this would alter relativities in a way similar to the alterations effected by the three $8 per week adjustments. The alterations, however, would be minimal. The Joint Employers contended that the 18 month interim period provided for in Schedule 5 of the WROLA Act would allow parties the opportunity to consider how to maintain viable classification structures which provided skill-based career paths. An alternative to this approach was to deal with the issue through workplace agreements.
Section 89A(2) of the new Act makes it clear that the Commission still has the discretion to include in awards classifications of employees and skill-based career paths [s.89A(2)(a)] and matters incidental to them [s.89A(6)]. It follows that the Commission also retains the power to decide, in a particular case, whether existing award relativities should be maintained or altered.
The Joint Governments submitted that internal award relativities were no longer an important part of the award system. We do not agree. Such relativities remain an important determinant of the fairness of the minimum wage structure within awards. How can award rates be fair if they do not properly reflect the relative skills, responsibilities, etc of jobs covered by the award? If an award system has to be fair, then it is no answer, as the Joint Governments suggest, to leave it to workplace agreements to establish appropriate relativities. The point is stronger when one considers that it is common for workplace agreements to build uniform percentage increases on to the established award rates. Furthermore, the provision of skill-based career structures in awards is a significant way in which employees are encouraged to improve their skills, contribute to higher productivity and advance to higher wages.
We agree with the Joint Employers who submitted that the shift to competency-based classification structures in awards, which commenced with the August 1989 National Wage Case decision (the August 1989 decision) [7 August 1989; Print H9100], has generally operated successfully and has been regarded as important by the award parties. We also agree with their submission that the 18 month interim period provided by Schedule 5 of the WROLA Act will give parties the opportunity to consider the manner in which they wish to maintain viable award career structures having regard to the new Act. Further, the matter of relativities may be the subject of consideration by the Commission as a result of applications already filed by employers requesting the Commission, pursuant to s.106 of the new Act, to determine principles in respect of allowable award matters.
Given our views on skill-based classification structures reflecting proper relativities, we would have preferred to grant a percentage increase throughout the award structures, thereby maintaining existing relativities. However, given the need to limit the addition to AWOTE - for the reasons elsewhere discussed - and weighing the competing needs of the low paid and the desirability of relativity preservation, we have chosen to give priority to the former.
We add two further points in relation to relativities. First, because of our concern about the disturbance of relativities throughout the structure, we have awarded the $10 per week increase to all award classifications rather than adopt the arbitrary cut-off of AWOTE, as proposed by the Joint Governments. Second, what is said about the deterioration in the position of employees at the lower end of award structures, relative to movements in agreements, inflation and productivity, applies with even greater force at the higher end of award structures. For example, in the Metal Industry Award, the effect of the three $8 per week safety net adjustments plus the $10 per week now granted is to increase the C14 rate by 10.4 per cent, whereas those same increases amount to 3.9 per cent at the C1(b) level. (If the Joint Governments cut-off applied, the latter rate movement would remain at the 2.7 per cent arising from the three $8 per week safety net increases.) Because we have concluded in Chapter 5.6 that the safety net of fair minimum wages is the award system, as it exists from time to time, is relevant, it follows that the criterion of fairness applies to award rates at all levels.
The arbitrated safety net adjustment which will be available as a result of this decision is $10 per week.
We grant this increase to assist low paid workers and because wage-earners who receive award rates, or little more than them, have not participated adequately (in our view) in the growth of earnings. The amount of $10 is likely to prevent a reduction over the next year in the real wages of employees in low and middle-level classifications. It is, of course, below the increases sought by the ACTU. The principal reasons why we do not accede to the ACTU wage claim are the economic considerations discussed in Chapter 6.
The Commission, in recent years, has granted three safety net increases of $8 per week. These increases have accorded with the ACTU's applications. We find it a convenient starting-point for a consideration of the appropriate increase on this occasion to ask ourselves whether we should now move above $8 per week and, if so, by how much. Our concern about the deteriorating relative position of award wage-earners (especially those who are low paid) has caused us to reject the option of granting yet another safety net adjustment of $8 per week. Nevertheless we have reached the conclusion that we should not award more than $10.
Increases above $10 per week - say $12 or $15 - would represent increases in award rates (particularly at the lower end of the classification structure) approaching the percentage increases currently being secured in some enterprise bargains. An increase of $12 per week at the C14 level would represent an increase of 3.4 per cent; and $15 would be 4.3 per cent. There are significant risks, in our view, that such increases would (1) raise the levels of settlements in future workplace and enterprise bargains; (2) raise the growth rate of AWOTE to a level inconsistent with the Reserve Bank's inflation target; and (3) diminish the incentive for unions and employees to engage in bargaining.
The Joint Governments' estimates of the direct costs of safety net adjustments of $8, $10, $12 and $15 per week are noted in Chapter 6.2. They were not disputed by any party. An increase of $10 per week would, on those estimates, contribute directly 0.34 per cent to the growth of AWOTE; $12 per week would contribute 0.40 per cent; and $15 per week would contribute 0.60 per cent. Each of these percentage increases would be associated with additional indirect effects, including those due to raising the level of settlements in workplace and enterprise bargaining. Because of the impact on bargaining outcomes, the indirect costs are likely to rise more than proportionally to the direct costs. It is probable, for example, that the total addition to AWOTE associated with a safety net adjustment of $15 per week would be more than double the addition due to an increase of $10.
The Reserve Bank has indicated, in general terms, that it sees safety net adjustments of the order proposed by the Joint Governments ($8 per week subject to a cut-off at AWOTE) as consistent with its inflation target. We are seriously concerned that increases much in excess of that level would jeopardise the achievement of that target and cause increases in interest rates and consequential adverse effects on employment. Our apprehension that increases in excess of $10 per week might have that effect is strengthened by our awareness that, in addition to the $10 adjustments, there will be increases in award wages due to the inception of the federal minimum wage.
We are also obliged to have regard to the objects of the new Act, which favour the determination of wages and conditions by bargaining at the workplace. There is a risk, in our view, that award increases in excess of $10 per week would discourage employees and unions from entering into workplace agreements.
Despite our decision that safety net adjustments in excess of $10 per week should not be granted, we repeat our concern about the size and continued growth of the gap between wages emerging under workplace bargaining and award rates. Achievement of a fairer outcome may require a reduction in the average level of negotiated increases.
We have decided to provide that allowances which relate to work or conditions which have not changed and service increments should be adjusted as a result of the $10 per week arbitrated safety net increase. This is consistent with the Commission's approach in recent safety net decisions. In the Furnishing and Glass Industries Allowances Case [Print M9675] the Commission decided the manner in which allowances and service increments would be adjusted for the first $8 per week arbitrated safety net adjustment. Contrary to the submissions of the ACTU and the Joint Governments, we see no reason to depart from the current practice of determining claims for the adjustment of allowances and service increments for flat money amount safety net increases in the context of each application for a safety net adjustment. This approach provides the Commission with the flexibility to determine the appropriate outcome in the circumstances of each case.
We have decided to determine a minimum wage (to be called "the federal minimum wage") for full-time adult employees of $359.40 per week and, for junior, part-time and casual employees, of a proportionate amount. (The federal minimum wage is to be inclusive of the arbitrated safety net adjustment determined by this decision and all previous safety net and national wage adjustments.) The main reason for so deciding is to give effect to the statutory requirement to have regard, when adjusting the safety net, to the needs of the low paid [s.88B(2)(c)]. The federal minimum wage of $359.40 per week is established as the wage below which no full-time adult employee working under a federal award is to be paid.
Accordingly, awards will, on application, be varied to provide for the federal minimum wage. The clause we determine is as follows:
"Federal Minimum Wage
No employee shall be paid less than the federal minimum wage.
The federal minimum wage for full-time adult employees is $359.40 per week and, for junior, part-time and casual employees, proportionate amounts.
The federal minimum wage:
(a) applies to all work in ordinary hours;
(b) applies to the calculation of overtime and all other penalty rates, superannuation, payments during sick leave, long service leave and annual leave, and for all other purposes of this award; and
(c) is inclusive of the $10 per week arbitrated safety net adjustment provided by the Safety Net Review - Wages April 1997 decision and all previous safety net and national wage adjustments."
The federal minimum wage, adjusted from time to time, will be an important part of the award safety net of fair minimum wages. Its maintenance will ensure a secure minimum level in award classification structures.
The ACTU sought the introduction of a minimum award rate of $380 per 38 hour week. There were various submissions supporting a minimum rate, but at a lower level than proposed by the ACTU. For example, ACCI submitted that the Commission should consider reviving the minimum wage (which is about $260 per week), granting a modest increase to it and reviewing it in the next review of principles. The BCA, in the context of a single minimum wage, submitted that there were strong arguments for making such a wage about $9.19 per hour, which is the C14 rate in the Metal Industry Award (currently $349.40 per week). Both ACOSS and The Brotherhood of St. Laurence supported the concept of a minimum wage.
For reasons given in Chapter 7.6, we have decided not to link the level of the federal minimum wage with any defined benchmark of needs. We think that the most appropriate course to follow now is to equate the federal minimum wage with the minimum classification rate in most federal awards; that is, the rate of the C14 classification in the Metal Industry Award. This approach (which is consistent with the proposal of the BCA), in our view, lends industrial realism to the minimum wage we have set because it is linked to the classification structure established by the Commission as a result of the August 1989 decision. The Commission, in deciding to establish minimum classification rates in the metal and building industries, said:
"Subject to what we say later in this decision, we have decided that the minimum classification rate to be established over time for a metal industry tradesperson and a building industry tradesperson should be $356.30 per week with a $50.70 per week supplementary payment. The minimum classification rate of $356.30 per week would reflect the final effect of the structural efficiency adjustment determined by this decision." [Print H9100 at p.12]
As a result of this decision, minimum awards were varied, over a period of time, to reflect the relativities so decided, leading to the C14 rate in the Metal Industry Award becoming the minimum classification rate in most federal awards.
We have decided that (1) the $10 per week arbitrated safety net adjustment and (2) the increase in wages to give effect to the federal minimum wage are to be fully absorbable against all above award payments. (Absorption, however, is not to apply to piece rates, tally and like arrangements prescribed by awards.)
The ACTU wage claim sought (1) that the $20 claim be absorbable against formalised bargaining outcomes since November 1991 but not against overaward payments or informal agreements and (2) that the percentage adjustments claim be fully absorbable into all above award arrangements. The ACTU envisaged that the proposed monetary adjustments and commitments to absorption would be reflected in the relevant award clause. The ACTU also submitted that it would not be inconsistent with its claim if, at the time an award was varied to insert the safety net adjustment, each union party to the award were required to give specific commitments as to absorption.
The Joint Governments and employer parties submitted that any arbitrated safety net increases should be fully absorbable against all above award payments.
In deciding to allow full absorption of the increases provided by this decision, we have had regard to the new Act, which has as one of the means to give effect to its principal object "enabling employers and employees to choose the most appropriate form of agreement for their particular circumstances whether or not that form is provided for by this Act" [s.3(c)]. Another reason is that the allowing of full absorption permits us to maximise assistance to award wage-earners within the cost constraints in which we are operating.
In relation to the $8 per week arbitrated safety net adjustments provided for in the September 1994 and October 1995 decisions, we have not been persuaded by ACCI's submissions to change now our ruling with respect to the absorption of these adjustments. It would, in our view, be unfair at this late stage to change the absorption arrangements for the $8 per week adjustments.
We have decided that we have the power to vary paid rates awards.
Although none of the awards before us is a paid rates award, there was an issue as to whether the Commission now had the power to vary a paid rates award to include a safety net adjustment without first converting the award to a minimum rates award. This matter was of relevance, not only with respect to any increase we might grant in these proceedings, but also with respect to any safety net adjustments arising from our September 1994 and October 1995 decisions which have not yet flowed into existing paid rates awards. The ACTU submitted that we possessed the power; the Joint Governments, to the contrary.
The determination of the issue turns primarily on the interpretation of:
· Section 89A(3) of the new Act, which provides:
"(3) The Commission's power to make an award dealing with matters covered by subsection (2) is limited to making a minimum rates award."
(Subsection (2) lists the allowable award matters.) and;
· Items 49(5) and (6) of Schedule 5 of the WROLA Act which are:
"(5) If:
(a) the award provides for rates of pay that, in the opinion of the Commission:
(i) are not operating as minimum rates; or
(ii) were made on the basis that they were not intended to operate as minimum rates; and
(b) the application under this item seeks to have such rates of pay varied so that they are expressed as minimum rates of pay;
the Commission may vary the award so that it provides for minimum rates of pay consistent with sections 88A and 88B of the Principal Act and the limitation on the Commission's power in subsection 89A(3) of that Act.
(6) If the Commission varies the award under subitem (5), it must include in the award provisions that ensure that overall entitlements to pay provided by the awards are not reduced by that variation, unless the Commission considers that it would be in the public interest not be include such provisions."
It will be noted that s.89A(3) refers to the Commission's powers to make an award and makes no reference to varying an award. In a number of other provisions, Parliament uses both words, "make" and "vary" (or "making" and "varying"). For instance:
· Section 88A(d) starts "The Commission's functions and powers in relation to making and varying awards ...".
· Section 89A(1)(b) which refers to "making an award or order".
· Section 89A(1)(c) which refers to "varying an award or order".
· Section 89A(4) starts "The Commission's powers to make or vary ...".
Section 89A(3) itself ends with the words "making a minimum rates award". In the Bill, when what is now s.89A(3) contained the words "to make or vary", the words "or varying" did not appear after "to making". In the initial list of amendments to be moved on behalf of the Government and the Australian Democrats (pursuant to an agreement reached between them), no amendment was moved with respect to s.89A(3). Subsequently, however, an amendment was moved on behalf of the Government and the Australian Democrats that the words "or vary" be deleted from s.89A(3). This amendment was made.
Item 49 deals with the variation of interim awards during what is called the "interim period"; that is, the period of 18 months beginning on the day on which s.89A of the new Act commenced (item 46 of Schedule 5 of the WROLA Act). (Section 89A commenced on 1 January 1997 - see s.2(4) of the new Act).
The ACTU submitted that the intention of Parliament was that the variation of paid rates awards, while they remained paid rates awards, was permitted. In support of this submission, the ACTU referred to the amendment of clause 89A(3) of the Bill, changing the words "to vary or make" to the words "to make". This, the ACTU argued, supported its contention that the restriction on the Commission's power under s.89A(3) was limited to making an award and did not extend to varying an award. The implication is that restoration of a power to vary paid rates awards was the considered intention of Parliament.
The Joint Governments argued that item 49(5) of Schedule 5 of the WROLA Act provided the only way in which a paid rates award can be varied during the interim period. They also pointed to item 49(6), which requires the Commission to include provisions ensuring that overall entitlements to pay are not reduced, unless the Commission considers that it would be in the public interest not to include such provisions. This requirement, it was argued, has the practical consequence that the Commission is required to express the rates of pay so that they comprise both a minimum rate and an additional, or paid rates, component. The omission of the words "to vary" facilitated the procedures specified in items 49(5) (and (6)), because, had "to vary" remained, s.89A(3) would, on its face, have been applicable to the variation of paid rates awards, thus compelling the Commission to convert them to minimum rates awards. In other words, the Joint Governments submit, the omission of "or vary" for s.89A(3) indicated that s.89A refers only to the making of new awards and the variation process is provided for in the transitional provisions in items 49(5) and (6) of Schedule 5.
Having considered the competing submissions, we agree with those of the ACTU. Accordingly, in our view, the Commission has the power to vary a paid rates award to include a safety net adjustment without first converting the award to a minimum rates award. This conclusion is supported by the legislative history described above. Had Parliament intended to retain the proscription of variations (except in the special circumstances mentioned), it is unlikely to have adopted the amendment which was in fact chosen.
It was submitted by the Joint Governments that, should the Commission determine (contrary to their submission) that the Act did not preclude variation to paid rates awards, the Commission should, nevertheless, as a matter of merit, not vary paid rates awards to include any safety net adjustment. Despite these submissions, we have decided that, on this occasion at least, paid rates awards should be varied pursuant to this decision. In our view, the appropriate time for the Commission to consider whether arbitrated safety net adjustments should continue to apply to paid rates awards is when this case is resumed in early 1998. That hearing will occur at a time close to the end of the 18 month interim period for awards provided for in the transitional provisions of the WROLA Act.
In our decision we have provided that any outstanding $8 per week arbitrated safety net adjustments available under the September 1994 and October 1995 decisions will be available from the same date as the $10 per week arbitrated safety net adjustment available pursuant to this decision.
The Joint Governments proposed that the present conditions pertaining to these adjustments be altered as follows:
· by no longer requiring the specified periods of time between each of the three adjustments, but allowing the Commission to decide that phasing-in is appropriate having regard to the labour cost impact on employers; and
· by simplifying and consolidating the conditions specified in the previous decisions for accessing the three adjustments.
The ACTU supported the amendments proposed by the Joint Governments.
ACCI proposed the retention of the current requirements for accessing the $8 per week arbitrated safety net adjustments.
Having regard to the submissions, we have reached the decision set out above. We have also decided to eliminate the previous tests except the requirement that the model anti-discrimination clause be included in the award.
As decided in Chapter 8.2.5, the current absorption rules for the $8 per week arbitrated safety net adjustments will remain.
The impact of significant labour cost increases arising from what we have decided can be mitigated by our decision to allow for the phasing-in of increases (see below).
In our decision we said that provision will be made for the phasing-in of increases when circumstances justify it. Any application for phasing-in will be referred to the President for consideration as a special case.
By consent of all parties to an award, and where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration.
The ACTU submitted that award rates should be expressed as hourly rates as well as weekly rates. This submission was generally supported by ACCI and the BCA. It was opposed by the MTA-NSW/MTA-SA, and concern about it was expressed by the NFF.
Our decision not to determine beyond one year the federal minimum wage and arbitrated safety net adjustments has been made for two reasons. First, wage adjustments should, so far as is practicable, be related to contemporaneous information about the state of the economy. Second, the Commission should have the opportunity of reviewing the effects of this decision. These reasons, we think, outweigh the benefit that determining increases for a three year period provides a degree of stability and certainty on wage outcomes. Increases which now seem appropriate for a later time may prove, in the event, to be inadequate or excessive.
Before us are two applications (C Nos 21166 and 21167 of 1996) by the CFMEU to vary the National Building and Construction Industry Award 1990.
Application C No. 21167 of 1996, as originally filed, sought to increase the carpenter's base rate by four adjustments of $15 per week each over a two year period, with other classifications receiving proportionate increases according to their relativity to the carpenter's rate. The matter initially came before McIntyre VP before whom an application for a reference to a Full Bench was made. The President referred the matter to a Full Bench (O'Connor P, McIntyre VP and Jones C). It was listed before that Full Bench on 31 July 1996, together with matter C No. 21166 of 1996. The latter application sought to increase the casual loading. It initially came before Jones C, before whom an application for a reference to a Full Bench was made.
At the conclusion of the proceedings on 31 July 1996, the Bench announced that it considered that the two matters should be listed with the ACTU wage claim. The President said that she would transfer them to this Bench.
In the proceedings before us no submissions were made about C No. 21166 of 1996 (casual loadings). Since we reserved our decision, the President has received a letter (dated 24 February 1997) from the CFMEU formally requesting that matter C No. 21166 of 1996 be brought on for hearing separately from the ACTU wage case. The President has yet to deal with this request.
Following the removal of matter C No. 21167 of 1996 to this Bench, the CFMEU amended its application. It now seeks four $15 per week safety net adjustments over a little more than two years, together with three increases in minimum rates by the same percentages as those sought in the ACTU's Living Wage claim with respect to the Metal Industry Award; that is 8.75 per cent, 10 per cent and 9.1 per cent.
At the outset the CFMEU said that it relied on the submissions of the ACTU with respect to: (1) the effect of the new Act; (2) the consideration to be given to the needs of the low paid; (3) absorption; and (4) alterations to the wage fixing principles. It then went on to develop its own case which it described as "unashamedly by and large industry specific" [Transcript p.365]. In the building and construction industry, the size of the gap that had developed between the remuneration of award dependent workers and those on agreement rates of pay justified the granting of the claim. The CFMEU said:
"If our application can be reduced to one simple proposition I would put to the Commission that it is this. We say the Australian wages system should not operate so as to disadvantage workers who because of structural or economic circumstances are wholly dependent upon the award system." [Transcript p.367]
The CFMEU's application was supported by a report called "Must it End in Tiers? Problems and Prospects of a Two Tier Wage Structure in the Australian Construction Industry" prepared for the CFMEU by the Employment Studies Centre of the University of Newcastle. Two of the authors of the report, Dr Roy Green and Dr John Burgess made affidavits, each of which stated that the report made the following main points:
"1. `Comparative wage justice' remains a force within the Australian wages system and is not necessarily incompatible with the growing emphasis on productivity improvement at the workplace level.
2. With the spread of enterprise bargaining, Australia faces the prospect of a two tier wages system, divided between organised workers able to secure enterprise agreements and those trapped on award rates with no access to bargaining.
3. The construction industry is characterised by `pattern bargaining' because workers are not attached to an `enterprise' as such but move continually between construction sites.
4. The construction industry is also characterised by a predominance of small and medium sized firms, where many employees are totally dependent upon award wages and conditions.
5. Over the period 1990-95 real award wage rates in the construction industry have fallen.
6. Over the same period the growth in base earnings in the industry has been more than double the award wage growth, resulting in a gap of $43 per week between the award rate and based earnings. The difference may be accounted for by the spread of enterprise bargaining.
7. The report is able to demonstrate that, as at 1 November 1996, the difference between the total award rate and the national EBA rate in the construction industry is $65.70 per week or 13.2 per cent. When site and productivity allowances are included, the gap widens to $133.70 or 26.8 per cent.
8. In the absence of appropriate award adjustments, the already substantial gap between the EBA rate and award rates is likely to grow further, thereby leading to the development of a `low pay ghetto' of non-EBA workers in the construction industry.
9. The CFMEU's application addresses the widening disparity between award wages and the enterprise bargaining stream; it preserves the integrity of the minimum rates adjustment process; and it continues the impetus for productivity-based bargaining."
The CFMEU argued that, in the present decentralised industrial relations environment, it was more important than ever for the Commission to maintain an active and interventionist role in balancing industrial fairness and economic efficiency. The Commission could maintain a strong connection with its historical role going back to the Harvester decision, by accepting that:
(1) the inferior bargaining position of individual employees necessitated the existence of a strong industrial tribunal;
(2) the award system is a legitimate and accepted framework for minimum employment standards; and
(3) social equity considerations - sometimes expressed by the notion of comparative wage justice - have always been central to the role of the Commission and its predecessors.
The CFMEU submitted that there were a number of structural characteristics of the building and construction industry which distinguished it from other industries. These characteristics included the following:
(1) the building and construction industry has the highest percentage of workers employed by small and medium sized firms of any major industry, with the majority of employees working for employers with fewer than 10 employees;
(2) construction sites are multi-employer enterprises; and
(3) a large number of the persons working in the industry are not employees (they are self-employed persons, etc.).
These structural characteristics, the CFMEU argued, explained why there were real logistical issues relating to the spread of enterprise bargaining, why comparative wage justice was a powerful force in the industry and why the CFMEU's application would have a negligible direct impact.
The CFMEU submitted that the increases sought were sustainable in light of the economic conditions prevailing in the industry. In so submitting, it relied on the University of Newcastle report. It said that the construction industry was one of the most cyclical in Australia, that substantial growth in it was forecast by Treasury and others, that profit levels and return on investment were high and that labour productivity was among the highest in the world.
The CFMEU then turned to what it called "the two-tier labour market" in the construction industry. This, as indicated earlier, was a central basis for its application. The University of Newcastle report showed that the differences between award rates and base earnings in the industry had grown five-fold from an average of $8.20 in 1992 to $43 in 1995. The CFMEU submitted that, in fact, the real gap was much higher. It here relied on the fact that the average weekly rate for carpenters under CFMEU certified agreements was $133.68, or 26.8 per cent, above the award rate, in a situation where a substantial number of construction workers (most likely a majority) were still solely dependent on the award system.
Relying further on the University of Newcastle report, the CFMEU submitted that the granting of its claim would not cause increased unemployment in the construction industry.
In conclusion, the CFMEU submitted:
"The CFMEU application is not intended to supplant enterprise bargaining. It is however, intended to narrow the gap between those who have been able to gain access to the system and those that have not. It is not a panacea, but a necessary step towards minimising a growing inequity. The rationale behind the application is that it is fundamentally unfair for workers to be disadvantaged by circumstances which are beyond their control. In other words, if the system of wage fixing in this country is reduced to a situation whereby wage justice is only available to those who have the industrial capacity to bargain, then it is clear that something essential has been lost." [Exhibit CFMEU 2 at p.19]
In a statement dated 5 November 1996, John David Sutton, Divisional Secretary of the Construction and General Division of the CFMEU, said:
"The CFMEU is prepared to give a commitment that in the current environment our claims for increases in overawards (including enterprise bargaining) in the building industry will not be based on increases in award wages arising from the CFMEU's application currently before the Commission." [Exhibit CFMEU 2, Attachment E]
The CFMEU's application was responded to specifically by the Joint Employers, MBA, ACCI and MP&MSA (one of the Joint Employers). All opposed it.
The MBA submitted that building workers should participate on the same basis as employees generally in any increase awarded in these proceedings. There was no basis for building workers to receive any special treatment, and there was no basis for the industry-specific considerations advanced by the CFMEU. Building workers were not among the low paid. The MBA:
(1) contended that the Act placed an emphasis on enterprise bargaining;
(2) denied that the CFMEU's claim, if successful, would achieve equality of earnings between employees on the same or different building sites: it would merely set the award floor at a higher level, providing an impetus for a further round of increases in enterprise agreements which would preserve the present differences (although delayed until new agreements were negotiated);
(3) took issue with the CFMEU's submissions on economic factors;
(4) submitted that the two-tier system had emerged over the last 5 years because of the actions of the building industry unions in seeking and obtaining pattern bargains which have imposed standard outcomes on employers; and
(5) argued that building and construction workers were not among the low paid; that the University of Newcastle report confirmed this; and that the CFMEU had not asserted to the contrary.
As to employment levels, the MBA said:
"Nor can the Commission have any confidence in [CFMEU's] proposition that wage increases in this industry are independent of employment levels. In this industry, the employer's choice is not necessarily between employing and not employing, but also between direct employment and subcontracting." [Exhibit MBA 1, p.10]
The Joint Employers submitted that there was no merit in the CFMEU's claim for industry-specific consideration. To grant the claim would undermine the generality of consideration of the ACTU wage claim. Comparative wage justice in its historical form was dead when it came to comparisons between minimum award rates of pay and rates of pay determined through the process of enterprise bargaining. In particular, the Commission should reject the proposition which was the essence of the CFMEU's case: that the CFMEU should be able to engage in pattern bargaining to obtain increases of a uniform nature, without regard to the circumstances of individual enterprises, and then make a claim for the award rate to catch up to these increases. A two tier wage structure was implicit in the Act and there was no legislative warrant for a catch-up. The new Act required the Commission "to ensure that a safety net of fair minimum wages and conditions of employment is established and maintained" (s.88B(2)), but not on the basis of equality with wages set in enterprise bargaining.
MP&MSA, in its separate submission, made reference to the circumstances of the plumbing industry, only 20 per cent of which, it contended, operated within the construction industry. As earlier noted, MP&MSA is one of the Joint Employers and, as such, was party to their submissions. It also supported the submissions of MBA.
ACCI submitted that the CFMEU's claim, being a sectoral one, would, if granted, lead to flow-on pressures. The CFMEU had not demonstrated that the circumstances of the building and construction industry were special and isolated. For the reasons which it had advanced with respect to the ACTU wage claim, ACCI disputed the CFMEU's submission that the granting of its claim would not lead to increased unemployment. With respect to the CFMEU's contention about the development of a two-tier wage system, ACCI said that this was not an argument for increasing award wages. It was inappropriate (for reasons given in responding to the ACTU wage claim) to have award rates chasing over award or enterprise agreement rates.
In our view, the CFMEU's wage claim must be rejected. The CFMEU has, in our view, failed to establish that the building and construction industry has special characteristics which, to a sufficient degree, differentiate it from other industries. We have considered the factors relied upon by the CFMEU, including the extent of award coverage, the large proportion of employers employing small numbers of employees and the difference between award rates and agreement rates. The claim is, as the CFMEU states, industry specific. The CFMEU's argument that the substantial difference between award and agreement rates must be reduced is also central to the ACTU wage claim. At various points in this decision, we make clear our concern about the growing disparity between wages paid under agreements and those prescribed in awards. This concern is not industry specific. We see no reason to provide a degree of relief to employees in the building and construction industry which is not generally available.
The ACTU submitted that the Commission should issue a general statement of principle that "part-time workers should not be discriminated against in terms of access to over award and other conditions of employment". The ACTU was supported by HREOC and WEL. HREOC sought that such a principle be extended to include superannuation and all forms of remuneration and work related benefits.
The ACTU argued that differential access by part-time workers to over awards and other conditions is substantially an issue affecting women, because approximately 75 per cent of part-time and casual workers are women.
In support of its proposal, the ACTU said that the Commission had already established that there should be "fair and equitable part-time provisions in awards" [see the Personal/Carers Leave Test Case - Stage 2 decision [Print M6700 p.37]]. The ACTU argued that its proposal reinforces this view and is consistent with various Conventions and Recommendation of the International Labour Organisation.
The Joint Governments and ACCI opposed the ACTU claim. The Joint Governments stated that the new Act addresses the issue of access of part-time workers to pro-rata conditions and refers to regular part-time employment. ACCI said that the Commission has always taken a cautious approach in seeking to regulate over award payments.
We endorse the views on part-time work expressed by the Full Bench in the Personal/Carers Leave Test Case - Stage 2. The ACTU however, goes beyond the test case in seeking to include a reference to over award payments and conditions which may exist outside of awards. The issues raised by the ACTU in respect of part-time workers are complex and it is inappropriate to deal with them in this case. Further, we note that, apart from the general protections of the Act regarding discrimination, applications pursuant to s.170BA and/or s.170BI are equally available to part-time workers and full-time workers. Moreover, part-time and casual employment are likely to be the subject of Full Bench decisions pursuant to s.106 cases in the near future. In our view, for these reasons, a statement of general principles as suggested by the ACTU cannot be determined by this Full Bench.
Submissions on the Statement of Principles were made predominantly by the ACTU, ACCI and the Joint Governments. The submissions of the Joint Governments were generally supported by the Joint Employers.
As various provisions of the new Act (such as ss.88B, 89A, 106, 113A, 113B and 143 and Divisions 4 and 8 of Part VIB) and item 49 of Schedule 5 of the WROLA Act specify the manner in which the Commission is now to operate, a Statement of Principles may no longer be necessary. None of the parties, however, argued that the Statement of Principles should be abandoned. Therefore, we have decided at this stage to maintain it. The Statement of Principles (as amended having regard to the submissions and the new Act) is Attachment A.
BY THE COMMISSION:
This Statement of Principles by the Australian Industrial Relations Commission (the Commission) on the nature of the wages system and the principles to be observed in its operation is to be read in conjunction with the provisions of the Workplace Relations Act 1996 (the Act) and the Workplace Relations and Other Legislation Amendment Act 1996 (the WROLA Act).
The Act provides for a workplace relations system which promotes workplace or enterprise agreements about wages and conditions of employment, upon a foundation of fair minimum standards established and maintained by the award system. In both areas the Act provides for the removal or prevention of specified forms of discrimination.
The priority in this system is on the parties at the workplace or enterprise level taking responsibility for their own industrial relations and reaching agreements in relation to matters affecting their employment relationship. Parties are able to choose the most appropriate form of agreement for their particular circumstances whether or not that form is provided for by the Act.
The award system provides a safety net of wages and conditions of employment which protects employees who may be unable to reach workplace agreements while maintaining an incentive to bargain for such agreements. It also provides the benchmark for the no-disadvantage test that the Act requires to be applied before agreements are certified by the Commission.
The Commission is responsible for ensuring that a safety net of fair minimum wages and conditions of employment contained in awards is established and maintained. Awards will generally be limited to allowable award matters and provisions that are incidental to them and necessary for the effective operation of the awards.
In exercising its powers and obligations under the Act, the Commission will continue to apply structural efficiency considerations, including minimum rates adjustment provisions consistent with the August 1988 [Print H4000], August 1989 [Print H9100] and April 1991 [Print J7400] National Wage Case decisions and the October 1993 Review of Wage Fixing Principles decision (the October 1993 Review decisions) [Prints K9700 and K9940], the August 1994 Review of Wage Fixing Principles decision [Print L4700], the September 1994 Safety Net Adjustments and Review [Print L5300] , and the October 1995 Third Safety Net Adjustment and Section 150A [Print M5600] (as varied by Print P1997).
The Commission facilitates agreement making (ss.170L and 170LA) in a number of ways including the following:
(a) By conciliating (s.170NA; s.100); where necessary, pursuant to s.111, by making recommendations and/or issuing directions to promote the efficient conduct of negotiations; and by making recommendations by consent, under s.111AA, to assist the parties in reaching agreement;
(b) By not exercising, during a bargaining period, arbitral powers under Part VI B of the Act in relation to a matter that is at issue between the negotiating parties (s.170N);
(c) By generally not arbitrating about the contents of enterprise agreements except where the Commission has terminated a bargaining period pursuant to s.170MW(3) or (7), in which case the Commission will exercise its powers pursuant to s.170MX;
(d) By applying ss.113A and 113B as appropriate.
The Commission will generally not arbitrate in favour of claims above or below the safety net of fair minimum award wages and conditions, except in certain circumstances. This applies to those on paid rates as well as minimum rates awards.
Existing wages and conditions in the relevant awards of the Commission constitute the safety net which protects employees who may be unable to reach an enterprise or workplace agreement. The award safety net also provides the benchmark for the no-disadvantage test that the Act requires be applied before agreements are certified.
The award safety net may, on application, be reviewed and adjusted from time to time, in accordance with the Act.
In the following circumstances an award may, on application, be varied or another award made without the application being regarded as a claim for wages and/or conditions above or below the award safety net:
(a) To include previous National Wage Case increases in accordance with paragraph 3.2.1.
(b) To incorporate test case standards in accordance with paragraph 3.2.2.
(c) To adjust allowances and service increments in accordance with paragraph 3.2.3.
(d) To adjust wages pursuant to work value changes in accordance with paragraph 3.2.4.
(e) To reduce standard hours to 38 per week in accordance with paragraph 3.2.5.
(f) To adjust wages pursuant to Arbitrated Safety Net Wage Adjustments in accordance with paragraph 3.2.6.
(g) To vary an award to include the federal minimum wage in accordance with paragraph 3.2.7.
(h) In response to applications made pursuant to Item 49 of Schedule 5 of the WROLA Act.
(i) To make orders under Division 2, Part VIA of the Act to ensure equal remuneration without discrimination based on sex.
Increases available under previous National Wage Case decisions such as structural efficiency adjustments, minimum rates adjustments and the three previous $8 arbitrated safety net adjustments will, on application, still be accessible.
(a) Any outstanding $8 per week safety net adjustments will be available, on application, from the same date as the $10 per week arbitrated safety net adjustment available pursuant to paragraph 3.2.6. Increases may be phased-in where circumstances justify it. Any application for phasing-in will be referred to the President for consideration as a special case.
(b) The only test for accessing the three previous $8 per week arbitrated safety net adjustments is that the award is varied to include the model anti-discrimination clause set out in the October 1995 Third Safety Net Adjustment and Section 150A Review decision [Print M5600, pp.19-20].
(c) The three previous $8 arbitrated safety net adjustments may be offset to the extent of any wage increases payable since 1 November 1991 pursuant to certified agreements, enterprise flexibility agreements or consent awards or award variations to give effect to enterprise agreements, insofar as those wage increases have not previously been used to offset arbitrated safety net adjustments. Increases made under previous National Wage Case principles or under the current principles, excepting those resulting from agreements, are not to be used to offset the three $8 safety net adjustments.
(d) The Commission will need to be satisfied that previous undertakings given by the parties regarding absorption are continued and that a clause is inserted in the award noting that the wage relativities in the award have been established in accordance with the August 1989 National Wage Case decision [Print H9100].
(e) The Commission will, where relevant, have regard to the implications for the fixation of junior rates or payment by results arrangements in the award in question.
Test case standards involving allowable award matters (s.89A(2)) established and/or revised by the Commission may be incorporated in an award. Where disagreement exists as to whether a claim involves a test case standard or a non-allowable award matter, a party asserting that it does must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether the claim should be dealt with by a Full Bench.
(a) Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses.
(b) Adjustment of existing allowances which relate to work or conditions which have not changed and of service increments for monetary safety net increases will be determined in each case by the Full Bench dealing with the safety net adjustment.
(c) In accordance with the Safety Net Review - Wages April 1997 decision [Print P1997] allowances which relate to work or conditions which have not changed and service increments will be adjusted as a result of the $10 per week arbitrated safety net increase. (The method of adjustment is to be consistent with the Furnishing and Glass Industries Allowance decision [Print M9675].)
(d) In circumstances where the Commission has determined that it is appropriate to adjust existing allowances relating to work or conditions which have not changed and service increments for a monetary safety net increase, the method of adjustment should be consistent with the Furnishing and Glass Industries Allowances decision [Print M9675]. Such allowances and service increments should be increased by a percentage derived as follows: divide the monetary safety net increase by the rate of pay for the key classification in the relevant award immediately prior to the application of the safety net increase to the award rate and multiply by 100.
(e) Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Work Value Changes principle of this Statement of Principles.
(f) New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses.
(g) Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the relevant principles of this Statement of Principles. The relevant principles in this context may be Work Value Changes or First Award and Extension to an Existing Award.
(h) New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant parts of the Work Value Changes principle of this Statement of Principles.
(a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification.
In addition to meeting this test a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against external classifications to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position.
These are the only circumstances in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this principle.
(b) In applying the work value changes principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed. (s.88B(3)(a))
(c) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole.
(d) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the August 1989 National Wage Case decision [Print H9100].
(e) Care should be exercised to ensure that changes which were or should have been taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this principle.
(f) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work.
(g) The expression "the conditions under which the work is performed" relates to the environment in which the work is done.
(h) The Commission will guard against contrived classifications and over-classification of jobs.
(i) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other principle of this Statement of Principles, will not be taken into account under this principle.
In approving any application to reduce the standard hours to 38 per week, the Commission will satisfy itself that the cost impact is minimised.
In accordance with the Safety Net Review - Wages April 1997 decision [Print P1997] minimum rates and paid rates awards may, on application, be varied to include a $10 per week arbitrated safety net adjustment subject to the following:
(a) The operative date will be no earlier than the date of the variation to the award.
(b) At the time when the award is to be varied to insert the $10 per week safety net adjustment, each union party to the award will be required to give a specific commitment as to the absorption of the increase. In particular, the union commitments will involve the acceptance of absorption of the $10 per week safety net adjustment to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and over award arrangements. Absorption which is contrary to the terms of an agreement is not required.
(c) The following clause must be inserted in the award:
"The rates of pay in this award include the $10 per week arbitrated safety net adjustment payable under the Safety Net Review - Wages April 1997 decision. This arbitrated safety net adjustment may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.
Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset arbitrated safety net adjustments."
(d) The safety net adjustment should specify a separate "arbitrated safety net amount" for each classification in the award. Where the minimum rates adjustment process in an award has been completed, the Commission may consider an application for the base rate, supplementary payment and arbitrated safety net adjustments to be combined so that the award specifies only the total minimum rate for each classification.
(e) By consent of all parties to an award, where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration.
In accordance with the Safety Net Review - Wages April 1997 decision [Print P1997] minimum rates and paid rates awards may, on application, be varied to provide for the federal minimum wage for full-time adult employees of $359.40 per week and, for junior, part-time and casual employees, proportionate amounts (inclusive of the $10 per week arbitrated safety net adjustment and all previous safety net and National Wage adjustments) subject to the following:
(a) The operative date will be no earlier than the date of the variation to the award.
(b) The federal minimum wage is to be provided for in a separate clause in the award, as follows:
"Federal Minimum Wage
No employee shall be paid less than the federal minimum wage.
The federal minimum wage for full-time adult employees is $359.40 per week and, for junior, part-time and casual employees, a proportionate amount.
The federal minimum wage:
(a) applies to all work in ordinary hours;
(b) applies to the calculation of overtime and all other penalty rates, superannuation, payments during sick leave, long service leave and annual leave, and for all other purposes of this award; and
(c) is inclusive of the $10 per week arbitrated safety net adjustment provided by the Safety Net Review - Wages April 1997 decision and all previous safety net and national wage adjustments."
(c) At the time when the award is to be varied to insert the federal minimum wage clause, each party to the award will be required to give a specific commitment as to absorption of any increase arising from the insertion of the federal minimum wage clause. In particular, the union commitments will involve the acceptance of absorption of any increase arising from the insertion of the federal minimum wage clause to the extent of any equivalent amount in rates of pay which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and over award arrangements. Absorption which is contrary to the terms of an agreement is not required.
(d) The following clause must be inserted into the award:
"The rates of pay in this award include the federal minimum wage payable under the Safety Net Review - Wages April 1997 decision. Any increase arising from the insertion of the federal minimum wage clause may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.
Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset the Federal Minimum Wage."
(e) Any disagreement as to the variation of an award to include the federal minimum wage (including whether the federal minimum wage should be phased-in) will be referred to the President for consideration as a special case.
(f) Federal minimum wage clauses may be inserted in awards in which the minimum classification rate exceeds $359.40 per week.
An application to make or vary an award for wages or conditions above or below the safety net will be referred to the President for consideration as a special case.
Applications involving a consideration of ss.89A(7) or 95 are subject to this principle.
A party seeking a special case must make an application pursuant to s.107 supported by material justifying the matter being dealt with as a special case. It will then be a matter for the President to decide whether it is to be dealt with by a Full Bench.
The following will apply to the making of a first award and an extension to an existing award:
(a) Where the circumstances require, a first award will be made as an interim award.
(b) The proposed award should contain minimum rates of pay and conditions which are consistent with the provisions of s.89A of the Act.
(c) In circumstances where employees who are to be covered by a first award have customarily been covered by paid rates awards, the Commission will disaggregate the classification rates in the award into an appropriate minimum rate and any residual component. The appropriate minimum rate will be identified by the valuation on work value grounds of key classifications in the award being converted consistent with the requirements of the August 1989 National Wage Case [Print H9100] and s.88B(3)(a).
(d) In determining the content of a first award the Commission will have particular regard to:
(i) section 88B(3);
(ii) the existing rates and conditions of employment applicable to the employees to be covered by the proposed award;
(iii) relevant Commission test case standards;
(iv) conditions contained in awards covering the same or related areas of industry;
(v) relevant minimum wage rates in other awards, provided the rates have been adjusted for previous National Wage Case decisions and are consistent with the decision of the August 1989 National Wage Case; and
(vi) the award simplification criteria in s.143 of the Act.
(e) In the extension of an existing award to new or award free work the rates applicable to such work will be assessed by reference to the value of the work already covered by the award provided the rates in the award are expressed as minimum rates and previous National Wage Case decisions, where relevant, have been applied to the award. Comparisons will also be made with relevant work in other awards. [s.88B(3)(a)].
Any respondent or group of respondents to an award may apply to reduce and/or postpone the application of any increase in labour costs determined under this Statement of Principles on the ground of very serious or extreme economic adversity. The merit of such application will be determined in the light of the particular circumstances of each case and any material relating thereto shall be rigorously tested. A party making such an application must make and justify an application pursuant to s.107. It will then be a matter for the President to decide whether it should be dealt with by a Full Bench.
This Statement of Principles will operate until reviewed.
Extract from Transcript of 7 August 1996 at pp.4-6:
"MR KELTY: So far as this application is concerned, we believe this matter should be dealt with in the following way. Firstly, we would wish to place on public record an overview of our claim. Secondly, we would seek in terms of the hearing today to indicate to the Commission what principles we believe are relevant in the determination of that claim; and finally, we would wish to submit a process in dealing with that claim, and we wish to do so expeditiously in presentation of this matter.
In terms of our objective, I make it clear from the outset of these proceedings so there is not misunderstanding or any confusion as to what the ACTU believes in. We have a clearly defined objective. We have an objective to establish a minimum of $12 per hour for work within ordinary hours. We have an objective to achieve a minimum of $456 per standard 38 hour week. We have an objective to sustain a schedule of minimum rates of pay consistent with previous Commission decisions in terms of the relativities; and we have an objective to achieve in three annual minimum safety net adjustments $20 a week for those employees who have not received enterprise bargaining increases. They are our objectives.
As we have indicated publicly, and we indicate here today, we believe that those objectives should be progressed in three stages as specific claims before the Commission in each of the next three years. We are making that position known and we seek to present our claim, understanding the economy in which we operate and the need to ensure that these claims are sustainable. We accept that the claim and our objective in those terms should be phased in over that period.
In the second stage it is our view that the ACTU and all the parties should address income employment security issues, having regard to changing work patterns as well as any changes in the legislative environment. In the third change, as we publicly said, we do believe it is important for this community to have regard to the issue of standard hours. For our part, we have no predetermined view as to what should be done at this stage. We have no specific claim. We do believe it is an important issue that the community, including the ACTU and its constituent parts, should address. But the claim which is currently before this Commission is the first part, the first stage, and the applications before this Full Bench reflect the first stage of our overall approach.
The specific claim which we are asking the Commission to arbitrate on this occasion is an immediate increase in the minimum rates of pay to achieve a minimum of $10 per hour for work within ordinary hours, a minimum of $380 per standard 38 hour week to achieve a schedule of minimum rates consistent with the previous Commission's decisions as to relativities and to achieve a minimum $20 per week wage increase through a safety net adjustment for workers who have not achieved enterprise bargaining adjustments. And we will be specifically asking, in terms of these proceedings, for the Commission to make a statement as to a matter of principle, and that statement relates to the issue of part-time workers and a view that part-time workers should not be discriminated against in terms of overaward payments, superannuation and other benefits of employment.
That is the nature of our claim and the overview which we wish to present. In doing so, it is appreciated by us that we are seeking to establish a new base for wage fixing. That is, we are asking for issues to be brought into wage determination that have not readily been brought into wage determination before, and we are asking for different weights to be given in terms of certain issues in the determination of wages. We are asking the Industrial Relations Commission of this country to determine that there should be a wider basis for the consideration of the issue of minimum rates.
We are asking it, too, to make a decision which maintains a multi-classification award system based on skill and the advancement of acquired skill and of qualifications. In the consideration of these issues, the ACTU will be submitting that the award system must be maintained as relevant by determining a minimum level of wages and conditions which must be paid and/or a minimum increase in wage rates which should be paid. The history of wage fixation in Australia, we will argue, has demonstrated that the Industrial Relations Commission and its predecessors has had a capacity to do both, provided that there is sufficient commitment and the decisions as to the intent of the Commission are clear and understood.
Considering the matters, we believe that there should be consideration of at least the following principles: firstly, that the award system must be relevant. To be relevant the award must have relevant rates and effective definitions. The award system cannot be left to die by lack of use. Secondly, in considering the relevance of wage rates, the rates paid in the market-place are a factor to be considered. Thirdly, that the integrity of the skill-based classification structure developed over the history of the award system, but more particularly as consolidated and advanced over the period 1989 to the current day, should be sustained.
Fourthly, in assessing what is fair and reasonable wage rates, regard must be had to the needs of workers and standards of fairness and other benchmarks of income adequacy such as poverty lines and cut-off points for government benefits. Fifthly, that the employees covered by awards should be entitled to receive part of the increase in the wealth of this society. Sixthly, the objectives of shared family opportunity and responsibilities and the desirability of viable, flexible working patterns should be promoted.
Seventhly, equity in the labour market and the determination of fairness is a matter for continued determination by this Commission. Eighthly, equality in labour market opportunities and remuneration, including, in respect of equal remuneration for work of equal value, a principle which must be sustained and maintained.
Ninthly, no discrimination in the terms of access to overaward payments, superannuation and other benefits for part-time workers should be adopted. And finally, we would submit that the Commission should determine that the Industrial Relations Commission can sustain a viable and effective award system and still be an agent for dispute resolution and enterprise bargaining in this country. We are asking the Commission to adopt in the determination of our claim the acceptance of those points, the principles. We are asking for it to review the award rates in the context of those principles and those understandings."
Dec 1326/96 S Print N5490
AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
Industrial Relations Act 1988
s.113 applications to vary
s.108 references of applications to vary
(ODN C No. 02568 of 1984)
[Print F8925 [M0039]]
(C No. 22275 of 1996)
(ODN C No. 01522 of 1979)
[Print F0813 [V0005]]
(C No. 33900 of 1996)
(ODN C No. 01339 of 1974)
[Print H5658 [V0019]]
(C No. 33901 of 1996)
(ODN C No. 02782 of 1986)
[Print M7207 [H0008]]
(C No. 22277 of 1996)
(ODN C No. 21626 of 1992)
[Print L3622 [L0125]]
(C No. 22278 of 1996)
(ODN C No. 22427 of 1991)
[Print K3165 [T0002]]
(C No. 22279 of 1996)
(ODN C No. 03697 of 1985)
[Print M0876 [C0173CRA]]
(C No. 22280 of 1996)
(ODN C No. 00696 of 1980)
[Print G0207 [C0037CRA]]
(C No. 33902 of 1996)
(ODN C No. 34749 of 1995)
[Print M8184 [C1128]]
(C No. 33908 of 1996)
(ODN C No. 30030 of 1993)
[Print M3948 [R0017CRA]]
(C No. 33922 of 1996)
(ODN C No. 31107 of 1993)
[Print L8307 [C0716]]
(C No. 33931 of 1996)
(ODN C No. 32518 of 1992)
[Print N2108 [S1062]]
(C No. 33932 of 1996)
(ODN C No. 01152 of 1985)
[Print G0585 [M0003]]
(C No. 33933 of 1996)
(ODN C No. 01800 of 1982)
[Print F5566 [R0007]]
(C No. 33934 of 1996)
s.113 applications to vary
s.107 references of applications to vary
(ODN C No. 20993 of 1990)
[Print L2892 [N0122]]
(C Nos. 21166 and 21167 of 1996)
Various employees Various industries
PRESIDENT O'CONNOR
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT HANCOCK
SENIOR DEPUTY PRESIDENT MACBEAN
COMMISSIONER OLDMEADOW
COMMISSIONER McDONALD MELBOURNE, 7 AUGUST 1996
Living Wage Claim
This Full Bench of the Australian Industrial Relations Commission today began hearing a number of applications made by unions for award variations. The applications seek to provide for what the ACTU describes as a "Living Wage".
All parties acknowledged that the determination of the applications before the Commission could have a profound effect on the future of wage fixation and agreed that the process of determining the claims should provide an opportunity for broader participation than might otherwise be the case. However, there was disagreement as to how this could be best achieved.
Those representing employers advocated a separate inquiry chaired by a member of the Commission. The Commonwealth, the Territories and all States except New South Wales advocated and extensive programme of conferences and working parties. The ACTU urged that the claim be dealt with expeditiously while acknowledging the value of wider participation. This submission was supported by New South Wales.
We have decided that broad participation should be invited but we do not consider it appropriate to conduct a separate inquiry. In our view the process of information gathering and participation with the community should not be separated from the process of arbitrating the claims.
A conference chaired by the President will be conducted on Wednesday 14th August at 11am in Melbourne to consider the following.
1. The method of participation by the community.
2. Areas of agreement as to the substance of the claims.
3. Other issues to be determined by the Full Bench.
Senior Deputy President MacBean will convene a further conference on Thursday the 15th August in Melbourne at 10am to discuss the content of a common exhibit book and related matters.
The claims will be relisted on the 1st and 2nd October 1996 at 10am in Melbourne to consider the outcome of the conference and the future progress of the claims.
At this hearing parties and interveners will have an opportunity to identify issues which in their view should be the subject matter of subsequent proceedings.
Dec 1327/96 S Print N5491
AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
Industrial Relations Act 1988
s.113 applications to vary
s.108 references of applications to vary
(ODN C No. 02568 of 1984)
[Print F8925 [M0039]]
(C No. 22275 of 1996)
(ODN C No. 01522 of 1979)
[Print F0813 [V0005]]
(C No. 33900 of 1996)
(ODN C No. 01339 of 1974)
[Print H5658 [V0019]]
(C No. 33901 of 1996)
(ODN C No. 02782 of 1986)
[Print M7207 [H0008]]
(C No. 22277 of 1996)
(ODN C No. 21626 of 1992)
[Print L3622 [L0125]]
(C No. 22278 of 1996)
(ODN C No. 22427 of 1991)
[Print K3165 [T0002]]
(C No. 22279 of 1996)
(ODN C No. 03697 of 1985)
[Print M0876 [C0173CRA]]
(C No. 22280 of 1996)
(ODN C No. 00696 of 1980)
[Print G0207 [C0037CRA]]
(C No. 33902 of 1996)
(ODN C No. 34749 of 1995)
[Print M8184 [C1128]]
(C No. 33908 of 1996)
(ODN C No. 30030 of 1993)
[Print M3948 [R0017CRA]]
(C No. 33922 of 1996)
(ODN C No. 31107 of 1993)
[Print L8307 [C0716]]
(C No. 33931 of 1996)
(ODN C No. 32518 of 1992)
[Print N2108 [S1062]]
(C No. 33932 of 1996)
(ODN C No. 01152 of 1985)
[Print G0585 [M0003]]
(C No. 33933 of 1996)
(ODN C No. 01800 of 1982)
[Print F5566 [R0007]]
(C No. 33934 of 1996)
s.113 applications to vary
s.107 references of applications to vary
(ODN C No. 20993 of 1990)
[Print L2892 [N0122]]
(C Nos. 21166 and 21167 of 1996)
Various employees Various industries
PRESIDENT O'CONNOR
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT HANCOCK
SENIOR DEPUTY PRESIDENT MACBEAN
COMMISSIONER OLDMEADOW
COMMISSIONER McDONALD MELBOURNE, 2 OCTOBER 1996
Living Wage Claim
This Full Bench of the Australian Industrial Relations Commission, after considering the submissions put by the parties and interveners (referred to hereafter as parties) on 1 October 1996, has decided that the applications for wage increases should proceed in the following way:-
1. The applicants are to provide to the Commission and parties by 6 November 1996 copies of:
- written submissions;
- documentary material relied upon; and
- witness statements.
2. If any party opposing the claim wishes to cross-examine the applicants' witnesses, in respect of whom statements have been provided, it should notify the applicants and the Commission no later than 20 November 1996.
3. Parties except the applicants are to provide to the Commission and other parties by 27 November 1996 copies of :
- written submissions;
- documentary material relied upon; and
- witness statements.
4. The applicants should no later than 4 December 1996 notify all other parties and the Commission if they wish to cross-examine any witnesses in respect of whom statements have been provided.
5. Written submissions should be directed to the claims before the Commission, whether any changes in the current Statement of Principles are necessary and, if so, what these changes should be.
6. A conference of parties, chaired by Senior Deputy President MacBean, will be held in Melbourne on Friday, 29 November 1996 at 10.00am. This conference will deal with the scheduling of witness evidence and related matters.
We have reserved the following dates for further hearings: 4, 5, 6, 10, 11, 12, 13, 17, 18, 19 and 20 December. Additional dates, if required, will be no earlier than 15 January 1997. The hearings on 4, 5 and 6 December will, on present intention, be in Melbourne.
The parties support our view that an opportunity should be provided to the public to make submissions on the claims. Accordingly any member of the public who wishes to make such a submission is invited to do so in writing by 20 November 1996.
To assist these members of the public, the Commission will make available (at all its registries) copies of the claims, statements provided to the Commission by some parties about the issues to be addressed in the case and other relevant material. This material can be examined during business hours.
We have noted the submissions of parties about the possibility that the proposed legislation now before Parliament, if passed before the conclusion of the case, will be relevant to its outcome. Accordingly, we recognise that the passage of the proposed legislation may necessitate a review of the programme for completion of the case.
Association of Non-English Speaking Background Women of Australia
Australian Catholic Commission for Industrial Relations
Australian Democrats
Australian Greek Welfare Society
Australian Young Christian Workers Movement
Buoyant Economies
Community Services Australia (the national body for community services in the Uniting Church)
Copelen Child & Family Services (an agency of the Uniting Church)
Council of Single Mothers and their Children
Ecumenical Migration Centre
Ethnic Communities' Council of Tasmania
Federal Opposition, The
Inner Western Region Migrant Resource Centre (Footscray, Victoria)
Institute of Sisters of Mercy of Australia
National Coalition of Aboriginal Organisations Secretariat
National Council of Women of Australia Inc Ltd
National Pay Equity Coalition
Nevile, Emeritus Professor John
Rimmer, Dr S & Worland, Prof. D
Shapiro, Jon
Smith Family, The
South Central Region Migrant Resource Centre Inc (St Kilda, Victoria)
Uniting Church in Australia - Ivanhoe Parish (Victoria)
University of Western Australia's Student Guild
Youth Action and Policy Association (NSW) Inc
This attachment should be read in conjunction with Chapter 6.2.
In its initial submission, the ACTU suggested "an overall full-year cost impact in the range 1.3 to 1.9 per cent for Stage 1 of the Living Wage claim, being higher for female employees than for male employees". [This matter is the subject of Section F of exhibit ACTU 5]. The 1.3-1.9 per cent impact represents an addition of that percentage to AWOTE. It consists of 0.5-0.95 per cent for the percentage adjustments claim and 0.8-0.95 per cent for the $20 conditional award increase.
With respect to the former, the ACTU relied upon unpublished ABS data on employee earnings and hours in May 1995, but increased the ABS estimates of earnings by 4.1 per cent (this being the growth rate of AWOTE between May 1995 and May 1996). It used the ABS data for six occupational groups: labourers and related workers; plant and machine operators and drivers; salespersons and personal service workers; clerks; tradespersons; and para-professionals. For all of these groups, the ABS supplied analyses by percentiles of the distribution of ordinary time earnings. The ACTU's calculations with respect to these groups were for the private sector only. For each group except one, the ACTU selected alternative minimum hourly rates as reflective of its claim. For example, in the case of labourers and related workers, it considered three hourly rates: $10.00 (C14 in the Metal Industry Award); $10.48 (C13); and $11.55 (storeworker grade 1). The costs of imposing these minima for the whole group were 0.3 per cent ($10); 0.8 per cent ($10.48); and 2.7 per cent ($11.55). Such differences account for the ACTU's "low" and "high" estimates. The majority of employees in the six occupational groups already receive more than the claimed hourly rates. The ACTU's assumption is that such persons receive above award payments of sufficient amount to "absorb" all of the claimed adjustments of minimum rates. This partially explains why the percentage adjustment claim adds so much less than 8.75 per cent to the wage bill. (Some employees, who receive low overaward payments, would get part but not all of the 8.75 per cent increase.)
Having made the calculations described above for the six occupational groups, the ACTU computed the weighted average increases as 1.0-1.9 per cent overall (0.8-1.6 per cent for males and 1.4-2.5 per cent for females). The ACTU's reasoning proceeded:
"As calculated, this is the (range of) overall additional cost impact across non-managerial, non-professional, private sector, full-time adults. Assuming part-time employees receive pro-rata increases, and that the cost impact of the minimum rates adjustment is zero for professionals, and negligible for public sector employees, the ranges estimated above can be adjusted by the proportion of non-managerial non-professional private sector employment to total employment, to yield the additional cost of the claim for the economy as a whole. The relevant adjustment factor is 0.5. [In May 1995, non-managerial non-professional private sector full-time adults number 1,909,200. Dividing this by total full-time adult employees of 3,974,700 yields 0.48, which we round to 0.5].
Applying this adjustment factor suggests the additional cost to the national wages bill deriving from the minimum hourly rates component of the Living Wage claim, is in the order of 0.5% to 0.95% in a full year. Further, because the level of average earnings for managerial, professional, and public sector employees exceeds that of non-managerial, non-professional private sector employees, the 0.5% to 0.95% range calculated will be too high (i.e. the adjustment factor 0.5 implicitly assumes average earnings are equal for both groups). This consideration reinforces the 'conservative' character of our cost estimates."
Thus a second assumption which "brings down" dramatically the cost of 8.75 per cent award increases is that professional and public sector employees are not affected by them.
With respect to the other element of its claim, the ACTU noted that $20 represents almost 3 per cent of AWOTE. Some employees, however, would not be entitled to receive this increase. They are:
· persons receiving increases of $20 or more under the percentage adjustment claim (with employees who get less than $20 from the percentage adjustment having the total made up to that amount); and
· workers covered by formal enterprise agreements (except where the increases since November 1991 are less than $44).
The ACTU estimated that the former group constitutes 15-20 per cent of "workers", referring to private sector "workers" in the six occupational groups. This percentage should be reduced by the factor of 0.5 which relates the number of private-sector non-professional employees in the groups to total employment. The ACTU believes "that formal enterprise bargains now cover more than half the workforce". Thus the percentage of workers who would receive an increase is estimated as [100 - 50 - 0.5 (15 or 20) = 40 or 42.5]. Some of these are persons who would receive less than 52.6 cents per hour (equivalent to $20 for a 38-hour week). The ACTU said:
"On the high estimates . . . between 5% and 9% of workers lie in this range. For some, the additional cost is close to zero, for others it is close to $20, and the rest lie in between. For present purposes, we take a straight line and say 7% will cost an additional $10 . . .".
The 7 per cent to which this passage refers is also subject to the adjustment factor of 0.5. Given that the additional $10 for these persons is one-half of $20, we have the proportion effectively receiving $20 as [100 - 50 - 0.5 (15 or 20) - 7 x 0.5 x 0.5 = 38.25 or 40.75] per cent. The overall increase in AWOTE due to the $20 claim is [3 x (0.3825 or 0.4075) = 1.15 or 1.22] per cent. If the ACTU's method of estimation is applied, it emerges that the $20 increase is the more costly part of the claim.
The ACTU, in its submissions-in-reply, noted a comment of the Joint Governments that some of the employees covered by the ABS survey in 1995 were not award-covered and hence would not be affected by the claim. It conceded this point, saying that "it is yet another reason why the ACTU costings should be regarded as conservative in that they overstate the likely true cost of the claim". [Exhibit ACTU 11 at p.136].
The Joint Governments contended that the ACTU's calculations produce "a distinct underestimate of the likely overall wage cost of the claim." [The cost of the claim is discussed at pp.129-131 and Appendix E of Exhibit Commonwealth 8.] They submitted:
"The ACTU's costing approach is simply to take broad occupational data from the ABS's EEH survey by percentile and then attempt to calculate what proportion of employees at different hourly rates would get an increase under the 8.75 per cent component of the claim. In our view, this is invalid as it takes no account of actual experience with safety net adjustments, and, thus, which workers would actually be eligible for increases. In addition the ACTU's analysis only considers a small number of broad occupational groups and a small number of award classifications. To properly cost the claim requires data across all of the occupations and all of the award classifications for those employees who are likely to receive increases under the claim - as outlined below our approach does this. While the ACTU does produce a weighted average figure, it is only average for the small number of classifications considered. Moreover, the ACTU's data, being straight from the EEH Survey, is not classified by either particular award or overaward classification. Indeed, the ACTU appears not to have restricted its data to `award covered employees'. As a result, its calculations suggest some inconceivable increases under the 8.75 per cent component of the claim. For example, labourers and related workers at the fifth percentile are actually shown to receive increases of over 12 per cent in the first stage of the claim, further highlighting the unreliability of the ACTU's estimates.
As to their costing of the $20 increase, this seems to have been done by making a judgment about the proportion of employees who rely on safety net adjustments and then working out what $20 represents as a percentage of earnings. As with the ACTU's costing of the `living wage' component of its claim, their approach to costing the safety net adjustment is not based on data across all of the occupations and all of the award classifications for those employees who are likely to receive an adjustment."
On the Joint Governments' estimate, the direct cost of the claim would amount to slightly more than two per cent of AWOTE. This estimate is based on data from the 1995 Australian Workplace Industrial Relations Survey. It relies on the survey to measure the prevalence of $8 per week safety net adjustments in the twelve months to late 1995 and assumes that a similar pattern of award-based increases would apply in 1997. The survey related only to workplaces with 20 or more employees. For smaller workplaces, the assumption is made that the proportion of employees receiving safety net increases is the same as in workplaces with 20-99 employees. A difficulty in the use of the survey for the required purpose is that managers were not asked how many or what proportion of employees received safety net increases. The key question was whether "any employees [had] received a pay increase in the past 12 months that was exactly $8 per week, and resulted solely from an increase in award rates of pay, not for any other reason" (emphasis added). Where there were affirmative answers, other data collected in the survey were used to provide indirect estimates of the proportions of employees who received safety net increases.
The Joint Governments estimated that 23.5 per cent of employees would receive the full 8.75 per cent increase in minimum rates and that 5.5 per cent would receive the $20 increase. These estimates do not allow for any partial absorption of the 8.75 per cent increase. The submission argues that "this is not an unreasonable assumption as employees who receive overaward payments tend to receive relatively high payments". In calculating the cost of paying 8.75 per cent increases to 23.5 per cent of employees, the Joint Governments had regard to the fact that employees who would receive these increases have below-average incomes. The Joint Governments' submission does not say how the total impact of "a slightly over 2 percentage point addition to aggregate wages growth" is divided between the 8.75 percentage adjustments claim and $20 elements of the ACTU wage claim. Twenty dollars represents 2.96 per cent of AWOTE in August 1996. If paid to 5.5 per cent of employees, it would raise AWOTE by 0.16 per cent. The submission states that a small contribution is made to the estimated overall increase by partial increases resulting from the claim. Ignoring this, and assuming that the cost impact of the claim is exactly two per cent, we can calculate that it comprises:
8.75 per cent claim 1.84 per cent
$20 claim 0.16 per cent.
This result contrasts with the ACTU's estimate, which suggests a much larger contribution by the $20 claim. We do not pretend to understand fully the reasons for this difference. One contributing factor, however, is a difference in the proportions of the labour force expected to be eligible for the two kinds of increase. This may be seen from Table A.1:
Estimates by: |
Eligible for 8.75% |
Eligible for $20 |
ACTU |
7.5% - 10% |
36.5% - 39% |
Joint Governments |
23.5% |
5.5% |
A critique of the Joint Governments' estimate of cost was undertaken by the MTFU. [Exhibit AMWU 7, at pp.29-47, Transcript pp.1049-1063] The MTFU asserted that "the Commonwealth has seriously overstated the gross cost of the ACTU claim". Most of the possible inaccuracies to which the MTFU pointed arise from limitations of the survey data on which the Commonwealth relied. The MTFU correctly identified aspects of the estimation procedure which entail a likely overestimation of the proportion of employees eligible for safety net adjustments in 1995. It also argued that an exaggeration of cost is inherent in the Commonwealth's assumption that award coverage remains as it was in 1995. In the MTFU's view, the coverage of awards would now be reduced by the spread of enterprise bargains. The Joint Governments did not dispute that there are biases in the Commonwealth's estimates, but contended that the biases went in both directions [Transcript p.1215]. They did not attempt to quantify the "pluses" and "minuses" - indeed, there would be little basis for such quantification. We cannot merely assume that the various biases offset each other. Equally, we cannot accept the MTFU's conclusion, derived from a consideration only of the biases tending in one direction, that the true cost is much lower than the Commonwealth's estimate.
The Joint Governments, in response to a question from the Bench, tendered (as exhibit Commonwealth 7) an article entitled "Measuring Wages", extracted from the Reserve Bank Bulletin. This contains the following passage:
"The Bank has prepared some estimates based on the view that workers who receive only award wages account for around one-fifth of the nation's wage bill and that Stage 1 of the claim would increase these workers' wages by 8¾ per cent. The estimates also allow for some effect on the wages of workers who currently obtain small overaward payments. Based on these factors, the direct effect of the Living Wage claim would be to increase the economy-wide wages bill by close to 2 percentage points."
The Bank, apparently, refers only to the percentage adjustment claim. We were told that the Reserve Bank's estimate was, like the Commonwealth's, based on the 1995 survey [Transcript p.1216]. We have little information about the manner whereby the Bank derived its cost estimate from the survey data.
ACCI provided estimates of the cost of the ACTU wage claim derived from a survey of its members [Exhibits ACCI 8, section 3 and ACCI 9, Tag 4]. The questions sought information about award wage rates and overaward payments. ACCI stated that 968 members had returned the questionnaire. We do not know the response rate which this represents.
From the survey data, ACCI calculated that the average award rate of full-time employees receiving award-based wages was $430.40. (The averages are weighted by reference to the industrial distribution of employment as reported by the ABS. Arguably, a more appropriate weighting would reflect the industrial distribution of award-based employment.) The proportion of these employees receiving award wages only was 47.2 per cent. Those employees would receive an 8.75 per cent increase, amounting on average to $37.70. A further 9.7 per cent of full-time employees would receive increases under the percentage adjustments claim, but less than the full amount. The average increase, for all of the award-based employees, from the percentage adjustments would be $20.10. In its initial submission, ACCI expressed this as a percentage of award rates (4.7 per cent). Upon reviewing the estimates, we had difficulty with that calculation and directed an inquiry about it to ACCI. We are now convinced that a more appropriate divisor is the average wage of award-based employees. An average increase of $20.10 would raise the wages of those employees by 4.2 per cent. The other part of the ACTU wage claim - the $20 increase - would apply to employees who did not benefit fully from the percentage adjustments. Combining the two components of the claim, ACCI estimated the average total increase for full-time award-based employees as $29.20. This amount is 6.1 per cent of the average wage of the employees concerned. Because part-time and casual employees receive proportionally smaller overaward wages, their wages would rise by larger percentages than those of full-time employees.
The ACTU, Joint Government and Reserve Bank estimates, discussed above, seek to measure the percentage increase in AWOTE implicit in the ACTU wage claim. This is, of course, different from the percentage increase in wages of award-based employees in the private sector. In response to a question from the Bench, ACCI estimated that award-based employment in the private sector constituted 70 per cent of the total. It is likely that non-award employees (including those covered by formal agreements) receive, on average, higher wages than award-based employees. Ignoring this, and otherwise accepting ACCI's estimates, we can calculate that the increases for private-sector employees would be 2.9 per cent for the percentage adjustments claim and 4.3 per cent in total. Two further adjustments are required to make ACCI estimates comparable with those of the other parties:
· If the increases are related to AWOTE, rather than private sector wages, the percentage increases are 2.1 per cent (percentage adjustments claim) and 3.0 per cent (total claim). (The latter percentage is derived as 100 x 29.20 x 70/100 x 676.40).
· There is little doubt that, on average, public sector employees would receive less than private-sector employees because of the greater incidence of formal agreements. We cannot quantify the difference, but the percentage increases in AWOTE would be less than those indicated above.
ACCI emphasised the disparate effects of the claim on employers in different industries. In Table A.2 we show the average percentage increases in wages for full-time award-based employees in the various industry sectors identified by ACCI. These are the increases due to the percentage adjustments claim only. Although ACCI did not provide estimates of the effects of the $20 claim in industry sectors (except manufacturing), it can be assumed that the $20 would narrow the differences. This is because the ACTU claim for $20 effectively excludes employees who would receive the percentage increases.
Industry Sectors |
Average Wage IncreasesDue to 8.75% Claim (%) |
Mining |
1.0 |
Manufacturing |
0.9 |
Construction |
2.4 |
Retail and wholesale |
7.3 |
Services |
4.3 |
Total |
4.2 |
Note: The percentage increases relate to the wages of award based employees in the private sector.
The NFF commissioned the Centre for International Economics to analyse statistically the effects of granting the ACTU's Living Wage claim [Exhibit NFF 1, Attachment 1]. The Centre used a method of estimating costs similar, but not identical, to that of the ACTU. Its estimates relate to the three stages of the claim and show percentage wage increases relative to 1996 wages. They are shown in Table A.3. It appears from the table that the effects of stage 1 of the
Year 1 |
Year 2 |
Year 3 | |
Average excluding agriculture |
1.27 |
2.82 |
5.06 |
Agriculture |
14.48 |
25.93 |
37.38 |
Average total |
1.47 |
3.24 |
5.66 |
claim are not fully articulated by the end of year 1. We infer that the effect of stage 1 would be to raise AWOTE by a little more than 1½ per cent. The large increases shown for agriculture are due partly to a low incidence of enterprise agreements and overaward payments, but also to the calculations being based on the hourly rates foreshadowed by the ACTU, rather than increases of 8.75 per cent. For example, the award rate for a station hand is now $349.40 for a 40-hour week. Raising it to $400 (40 x $10) represents a percentage increase of 14.5. Whether this is a correct representation of the ACTU claim is uncertain. If it is assumed that the percentage adjustments component of the claim does not exceed an 8.75 per cent increase in award rates, the increases in agriculture are less than those suggested in the NFF estimates; and the average increases would also be a little smaller.
In Chapter 6.2, we identify six ways in which the cost of award increases may be magnified beyond the direct effects. Those possibilities should be borne in mind in considering the parties' submissions.
The ACTU, in its initial submissions, confined its assessment of cost to the direct costs. In its written submissions-in-reply, the ACTU discussed the suggested link between award wage increases and enterprise bargaining outcomes. It stated: "The ACTU argues that EBA negotiations are forward looking and do not rely on lagging indicators (such as movements in the award system)." It further submitted:
"1. Movements in Award Rates of Pay are not key determinants of EBA increases.
2. EBA negotiations will not be "looking backwards" to Award movements and Living Wage adjustments but instead will be "looking forwards" to other influences, such as:
- inflationary expectations;
- profitability;
- firms productivity;
- community movements.
The RBA has warned about `inflationary expectations' allegedly generated by the Living Wage claim.
However, an ACIRRT survey of union's views of inflationary expectations ... shows that:
- union leaders have a good knowledge and understanding about the determinants of inflation;
- union leaders' own expectations of inflation have lowered over the last quarter according to the union survey . . .
So for instance from the end-year 1997, inflationary expectations have fallen 1% from 4.1% to 3.1% over one-quarter (between the two survey dates). These were taken when the Living Wage claim would have been known to those union officials, [This is outlined in the MTFU Reply Submission].
The AIRC should therefore reject the Joint Governments' argument that the Living Wage claim will cause inflation, hence Reserve Bank action leading to negative economic growth and unemployment. The argument misunderstands the influences of EBA and the way inflationary expectations develop and are reviewed in the EBA sector." [Exhibit ACTU 11 at pp.138-141]
The ACTU put no evidence in support of this account of enterprise bargaining.
The ACTU said about the absorption of overaward payments:
"The union applicants in these proceedings will provide individual statements as to their commitments to the nature of the Living Wage claim and the absorption and offsets underlying the two monetary adjustments.
The union applicants in these proceedings will be providing statements regarding their commitments to the Living Wage claim and to the absorption which is involved. This part of Section A deals with the matter in which these are to be expressed.
The absorption or offsetting of the monetary adjustments which are proposed under the Living Wage claim are based on the approach which has been adopted by the Commission." [Exhibit ACTU 5, section A at p.25]
The MTFU tendered an affidavit sworn by Doug Cameron (National Secretary of the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union) wherein he declared:
"The unions' commitment in terms of the Living Wage claim is that in the current environment our claims for increases in overawards (including enterprise bargaining) will not be based on increases in award wages." [Exhibit AMWU 1, attachment 2]
Jeff Lawrence, Joint National Secretary of the ALHMWU, made a statement that "the ALHMWU is prepared to give a commitment that claims for increases in overawards will not be based on increases in award wages arising from the unions' applications currently before the Commission" [Exhibit ALHMWU 1, section 1]. We observe, in passing, that the relevant issue is not whether the unions will claim increases in overawards, but whether they will facilitate or at least acquiesce in their reduction. Some other unions provided statements which did imply acquiescence in lower overaward payments. Even if the commitments removed any union-instigated resistance to absorption, however, it does not follow that absorption would occur. Employers may maintain the level of overaward payments for various reasons, including attraction and retention, the desire to recruit superior labour, rewarding long service or high-level performance, employee pressure and the objective of maintaining workplace morale.
The MTFU contended that the indirect effects of granting stage 1 of the ACTU's Living Wage claim would be slight. [The submissions about indirect effects are at Transcript pp.1061-1072.] The MTFU discussed, among other matters, the disturbance of relativities which might occur if the claim succeeded, illustrating its argument by the provisions of eight agreements in one State. This analysis appears to deal with relativities as between different skill levels and suggests that additional wage increases to the more skilled grades necessary to restore the pre-existing relativities would be small. We do not think, however, that this is the essence of concerns about relativities in the context of a consideration of the cost of the ACTU wage claim. The problem which is stressed by those who foresee wage increases to restore relativities relates to wage differences within grades. If one employer of fitters currently pays a weekly wage of $500 and another nearby pays the award rate of $441.20; and if the latter, by reason of our granting the ACTU wage claim, were forced to increase the fitter's wage to $479.80 while the higher-paid fitters received $520: would the reduction in the overaward margin from $58.80 to $40.20 endure? Again, if an employer pays the award rate to newly-hired fitters but grants an overaward payment of $50 after two years, would there be a reduction in the overaward payment to $31.40 ($50-$38.60+$20) if the claim were granted? The MTFU analysis does not answer these questions.
The MTFU also dealt with concerns about the possible effect of the granting of the ACTU claim on wage outcomes in enterprise bargaining. It was emphatic that the granting of the stage 1 claim would have no effect, but acknowledged that success in stages 2 and 3 would be likely to influence bargaining. The argument, as we understand it, was that unions are already claiming increases above those sought by the ACTU and will see no reason to alter these claims. It was suggested from the Bench that the important consideration was the level of settlement rather than the level of claim, and that granting the claim might affect the level of settlement. Mr Apple, for the MTFU, replied: "I just cannot see it, your Honour. If we have to settle for 10 [per cent] it is because we have lost out on the fight over 15." We find this answer unconvincing because it fails to take account of either the effect of the award increase on employers' bargaining stances or its effect on the attitudes of union members. The MTFU discussed the suggested effect on bargaining claims of a higher level of inflation, contending that the effect of the award increases sought on the inflation rate, and hence on future wage increases, would be small. Any indirect effects of the award increase, tending to raise the growth rate of wages above that implied in the direct cost of the ACTU wage claim, would be countered by a degree of non-compliance with the award increases. The written submissions-in-reply of the MTFU stated that "the indirect effects of the claim have been exaggerated" and that "the contribution of productivity/efficiency measures implemented by firms affected by the claim as well as a discount factor for non-compliance will more than offset the indirect effects." [Exhibit AMWU 7 at p.27]. We cannot accept these assertions when we take into account (1) the failure of the MTFU to deal with some of the postulated linkages between the direct and indirect effects of the ACTU claim, if granted, (2) the unconvincing nature of its arguments about the indirect effects on enterprise bargaining outcomes, (3) the scanty information provided about non-compliance and (4) the lack of any evidence to support the alleged benefits to efficiency and productivity. In relation to the last, we note that what is relevant is not whether productivity and efficiency will advance - it is generally assumed that they will - but whether success of the ACTU wage claim would cause gains which will not otherwise occur.
The Joint Governments asserted that the indirect effects of the ACTU wage claim "would inevitably lift its actual contribution (including both direct and indirect) to aggregate wages growth to well in excess of 2 per cent." [The relevant part of the written submission is in exhibit Commonwealth 8 at p.129.] They submitted:
"Among the most important of these indirect effects is likely to be higher aggregate wage outcomes flowing into higher inflation and leading to further demands for wage increases. In addition, workers and unions in strong bargaining positions are likely to press for higher enterprise bargaining settlements so as to maintain relativities vis-a-vis workers who remain reliant on the safety net. In this way, the claim will have put a new, higher floor under enterprise bargaining. Alternatively, employers may feel constrained to pass on the wage increase in order to maintain relativities within a firm, particularly where there is a wide range in the value of overawards. Looking beyond the workplace, employers may also be forced to pass on the increase for reasons of recruitment or retention. To emphasise, none of these likely effects have been taken into account in our estimates of the labour cost impact of the ACTU's claim. They are, however, likely to be large."
In presenting the results of calculations made by use of the Treasury's TRYM model, the Joint Governments said:
"The direct impact of the claim on wage growth is magnified in the TRYM model by the indirect effects of the claim. Higher aggregate wage outcomes flowing into higher inflation leads to further ongoing demands for wage increases. The modelling only explicitly accounts for this direct effect."
So far as the presentation to this Bench was concerned, the assumptions of the TRYM model were not defined. We cannot deduce what extra contribution to wages growth is due to the assumed adjustment of wages for inflation or appraise the assumptions which underlie the implicit prediction as to that effect.
The Joint Governments also discussed the effects of the claim, if granted, on agreements. They contended that the increases in award wages would discourage agreement-making, and added that "to the extent that some employees saw continuing benefit in trying to reach agreement with their employers, the claim would undoubtedly put a considerable floor under future agreement outcomes, thus further jeopardising ongoing achievement of moderate wages growth and low inflation." The submission offered an estimate, derived from the Workplace Agreements Database of the Department of Industrial Relations, "that anything up to a quarter of employees currently in the agreement making stream might have their agreement-based wage rates fully absorbed or overtaken by their underlying award rates by the end of the first stage of the ACTU claim . . .".
ACCI discussed the prospects for absorption of the increases sought by the ACTU:
"Overaward payments have always been an important source of flexibility in Australian industrial relations. Reasons for overaward payments are varied but significant factors include:
. payments to attract skilled employees in short supply, for example tradespersons. The ACCI survey on overaward payments, for example, states that some 29.6% of all respondents state that market forces prevent absorption;
. payments to reward loyal service and to retain valued staff;
. payments in the way of bonuses for company performance or prosperity;
. payments to establish appropriate workplace relativities based on employer assessments of the appropriate relativities. For example, the ACCI Survey on Overaward Payments shows that about 41% of respondents stated that the need to preserve workplace relativities was a factor preventing absorption.
For specialised skills the short run elasticities may be very low, with almost no possibility of quickly increasing their supply given training lead-in times. Workers with skills are very much aware of the premium that they can command in the labour market, and often regard overaward payments relative to those received by other workers as a measure of their personal worth to the employer. This leads to a reluctance to accept cuts in their relative pay rates, even though it does not change their absolute dollar rewards. Workers can often be expected to seek an employer who would be prepared to offer the same relativity compared with a less skilled worker. On the other hand workers with more homogenous skills are less likely to receive overaward payments, with overaward payments varying by occupation as well as industry and geographical region. Some geographical regions, for example the outlying States and country areas are less likely to have overawards, or the incidence of overawards is less.
There has been a long process of absorption through the minimum rates adjustment process and the October 1993 $8, and the extent of absorption proposed in those instances was relatively small in most cases. The absorption proposed in the present instance follows on this long process of absorption, which in some cases is only just being completed, and would commence an extremely large process of absorption. Questions of the most serious kind must exist about the feasibility of absorption given:
. the recent history of extensive absorption;
. the comparatively large extent of the absorption proposed in the present case.
It is therefore not surprising that some 34.7% of respondents to the ACCI Overaward Payments Survey should describe the likelihood of full absorption as `completely unrealistic', 27.6% as `unlikely', 13.4% as `possible but far from certain', and only 11.4% and 13% as likely and certain respectively. Similar results were recorded for the prospects for partial absorption, although there was some transfer of numbers from the `completely unrealistic' to other categories." [Exhibit ACCI 7 at pp.32-34]
ACCI also provided information about the possible transmission of award increases into agreements. Its survey contained the following question: "If an 8.75 per cent wage increase is granted, what effect will this have on the actual wages paid to employees in your enterprise covered by an enterprise agreement?" [Exhibit ACCI 9, Tag 3 at p.6]. (We were not told how many of the respondents had enterprise bargains). Respondents were asked to distinguish between immediate effects and effects when the existing agreements were renegotiated. The results, as reported by the ACCI, are shown in Table A.4. The percentages given in the "When Renegotiated" column should be treated with caution. As we read the question, there is an ambiguity as to whether the increases in wages which emerge when the agreement is renegotiated are intended to include or to be additional to those which take effect immediately. Moreover, since the question was answered by only one of the parties to the negotiations, the answers must have been conjectural. The immediate effects, in relation to the survey respondents, are less problematic. The "when renegotiated" column serves at least to remind us that there are probable additional, though delayed, effects.
Effect on Wages Paid |
Immediate% |
When Renegotiated % |
No effect |
62.6 |
21.3 |
Increase by less than 2% |
2.7 |
2.6 |
Increase by 2 - 5% |
8.2 |
18.7 |
Increase by 5 - 8.75% |
5.4 |
18.7 |
Increase by exactly 8.75% |
12.9 |
12.9 |
Increase by more than 8.75% |
8.2 |
25.8 |
Weighted average increase |
2.6 |
5.7 |
Source: Exhibit ACCI 9, Tag 7.
In the joint submission of the MTA-NSW and the MTA-SA (discussed further in Chapter 6.6), the results are reported of a survey of members conducted in September and October 1996 [Exhibit MTA-1, pp.10-12 and Attachment C]. The questionnaire was distributed to 6,447 members, of whom 699 responded. Of the respondents, 28.4 per cent paid over award wages to all employees. These employers were asked: "If all of your employees are paid over the award, when award wage increases occur do you pass on equivalent increases to those employees?" The proportions answering "yes" and "no" were 73.5 per cent and 26.5 per cent, respectively. The proportion of respondents who paid over the award to only some employees was 63.8 per cent. They were asked: "When award wage increases occur, do you maintain the wage difference between your employees paid over the award and other employees paid on the award?" This question was answered "yes" in 69.3 per cent of the responses. These results lend support to ACCI's contentions about the improbability of total absorption. A similar inference is suggested by the results of an MTIA survey of overaward payments [Exhibit J 1, pp.30-37]. Because of concerns about the small size of the sample of firms and difficulties in the interpretation of the results, however, we do not comment further on that material.
This Attachment should be read in conjunction with Chapter 6.3.
The ACTU, in its principal submission, said that assertions about adverse employment consequences of the granting of its claim "should be assessed in reference to:
· The debate in economic theory over minimum wages and employment.
· The empirical evidence in the USA with the `New Economics of the Minimum Wage'.
· The factual evidence of the Australian labour market - in particular the positive employment developments for women following the Equal Pay Cases of 1969 and 1972." [The ACTU's discussion of employment matters is in exhibit ACTU 8, Section D at pp.11-21]
It was the ACTU's submission that "the Living Wage Claim is consistent with continued employment growth and will not cost jobs". The contrary view was "based on a simple theoretical model of the labour market which is fundamentally flawed in terms of theory" and "fundamentally flawed when tested in terms of empirical research in the real world of labour markets". In summary, the ACTU disputed the relevance to the labour market of economic models wherein the quantities demanded of traded goods and services are negatively related to their prices.
The ACTU cited various foreign studies of the relation between employment and wages. The best-known of these is the book Myth and Measurement; The New Economics of the Minimum Wage, by David Card and Alan Krueger (Princeton University Press 1995). According to the ACTU:
"The book is a culmination of the research of the effect of minimum wages in a number of US states. The book sifts the US evidence in forensic detail; reviews international evidence, and provides a rigorous treatment of the theoretical issues involved. Card and Krueger show that increases in the statutory minimum wage lead to increases in pay, but no loss of jobs. In some cases the net effect on employment was actually positive."
The ACTU comments at some length on the overseas debate surrounding the research findings of Card and Krueger. It says that in Australia "a similar pattern has emerged". We take this to mean that in Australia studies have discovered no adverse effects of wage increases on employment. The ACTU refers "for example" to the consequences of Equal Pay Cases of 1969, 1972 and 1975, relying in part on a study by R G Gregory and R C Duncan ("Segmented Labor Market Theories and the Australian Experience of Equal Pay for Women", Journal of Post Keynesian Economics, Spring 1981, Vol. III, No. 3). [Copy included in ACTU supporting material]. Gregory and Duncan's view is that the movement toward equal pay was a policy-driven rather than a market-driven process. If this were so, simple theory would suggest that women's job opportunities might be adversely affected. Gregory and Duncan discern little sign of that effect. They write:
"[A]lthough relative employment appears not to have been greatly affected by relative wage changes, significant changes in the future cannot be ruled out. The analysis of this article suggests, however, that any sudden deterioration of employment of females relative to males should not necessarily be attributed to the equal pay decisions."
Gregory and Duncan also observe that "if female employment relative to male employment has responded little to relative wage changes, it does not necessarily follow that total employment is unresponsive to relative wage changes".
The ACTU's arguments, and especially the research findings cited in their support, went mainly to the second of the three aspects of the matter outlined in Chapter 6.3, ie, the micro-economic aspect.
ACCI [Exhibit ACCI 8, section 1 at pp.14-17] discussed the likely effect of the ACTU wage claim, if granted, on unemployment. It said:
"The ACTU continuously says that its claim will not add to unemployment. This is mere assertion, with little theoretical or empirical reasons to believe that it is true. An increase in the cost of labour of the order of magnitude contemplated by the ACTU is certain to cost jobs.
Giving any individual employee an 8.75% increase has the potential to jeopardise the person's continued employment. When in fact great swaths of employees, sometimes across the entire industry such as the retail industry, are receiving large increases, what must be considered a virtual certainty is that a very large number of those employees will lose their jobs and other possible employees will never be hired in the first place."
In a separate section of its submissions [Exhibit ACCI 8, section 4], ACCI discussed "Efficiency and Equity in Wage Fixing". This was, in part, a commentary on "the ACTU excursion into the literature which purports to demonstrate that granting the ACTU Claim will not cost jobs either in theory or in terms of the empirical research". ACCI contended that the material cited by the ACTU is irrelevant to the case:
"If the ACTU were doing no more than attempting to fix a minimum rate, which was indeed a minimum rate, then the material provided in Section D of their submission might have been germane.
But again it is worthwhile to remind the Commission just what the ACTU Claim actually is. What the ACTU seeks, is not an increase in the absolute rock bottom rate that anyone can be legally paid, but it in fact seeks a minimum rate adjustment in every award rate from the lowest rate right through to the highest. It seeks an increase of 8.75% in every award minimum, which is a far far different thing from seeking increase in the minimum level of wage payments."
ACCI also refers to items in the literature cited by the ACTU which admit the possibility that wage increases, especially if they are large, may cause loss of jobs.
ACCI tendered an article by R B Freeman ("The Minimum Wage as a Redistributive Tool", Economic Journal, Vol. 106, May 1996). Freeman states:
"At best, an effective minimum wage will shift the earnings distribution in favour of the low-paid and buttress the bottom tiers of the distribution from erosion. At worst, minimum wages reduce the share of earnings going to the low-paid by displacing many from employment. Neither outcome is certain, so that enacting a minimum is a risky but potentially `profitable' investment in redistribution."
ACCI noted a statement by Freeman that the persons who may pay for a minimum wage "are low-wage workers, or some subset thereof, through loss of jobs". Freeman, however, lends perspective to this statement in a passage which immediately follows:
"If the elasticity of demand for minimum wage workers exceeds one, the minimum will reduce rather than increase the share of earnings going to the low-paid. Research on the employment effects of the US minimum and of wages councils minima in the United Kingdom has shown that the elasticity of demand for minimum wage workers hovers around zero. Some well-constructed studies in the United States find employment growing modestly in impacted sectors after a minimum wage increase. Careful British studies found that abolition of wages councils reduced pay but did not raise employment in affected occupations (Dickens, Gregg, Machin, Manning, Wadsworth, and Woodland, 1994; Machin and Manning, 1994; Dickens, Machin, Manning and Wilkinson, 1995). No study in the United States or the United Kingdom has found that increases in minimum wages reduce total employment with an elasticity near unity: the debate over the employment effects of the minimum is a debate of values around zero (see Card, 1992 a, b; Katz and Krueger, 1994; Neumark and Wascher, 1994; Card and Krueger, 1995). Absence of noticeable employment losses in these studies does not, of course, imply that minimum wages much higher than those observed may not risk large job losses nor that minimum wages may not cause employment disasters in particular sectors, such as apparel, or in particular firms. It does imply that at some levels little of the cost of the minimum is borne by low-wage workers.
Still, if even a few workers are disemployed by the minimum, the minimum may have undesirable redistributive effects. Employed low-paid workers benefit from the minimum, but the disemployed lose."
ACCI drew attention to Freeman's view that "the long term well being of workers in the low rung of the earnings distribution depends ultimately on increasing their productivity". It commented:
"This is surely the point . . . The key to everything is higher productivity. Raising the wages of the unemployed (sic) without increasing productivity will risk their continued employment and even over the longer term is likely to show real earnings growth rather than increase it. The focus must be on productivity."
ACCI did not consider the possibility that increasing the wages of low paid workers may raise their productivity.
The Joint Governments, responding to the ACTU's contentions, reviewed some of the literature on the relation between minimum wages and employment. [Exhibit Commonwealth 8 at pp.140-149]. Before doing so, they suggested that there was an inconsistency between the ACTU's stance in the present case and arguments endorsed by it in earlier cases to the effect that the wage restraint which went with the Accord had lowered real unit labour costs and thereby enhanced employment growth. They perceived a contradiction, too, between the ACTU's arguments in this case and its support for labour market programmes such as JOBSTART, which involve the payment of subsidies to encourage employment.
In their discussion of the empirical analyses, the Joint Governments distinguished between time series and "natural experiment" studies. They said that the vast majority of the former "have supported the view that a negative relationship exists between employment and wages". They cited a study by Charles Brown, published in 1982 ("The Effect of the Minimum Wage on Employment", Journal of Economic Literature, Vol. 20, June 1982), which "synthesised the results of a number of studies to conclude that a 10 per cent increase in minimum wages generally translated into a modest (between 1 and 3 per cent) decrease in employment". The Joint Governments noted the emergence of doubts about the continuing strength of the relation, but thought it "logical to conclude that a negative relationship of some sort has and will continue to exist between wages and employment".
The term "natural experiments" characterises studies which compare employers who are subject to legally-imposed wage increases with employers who are not. They include the case studies reported by Card and Krueger. Their research has provoked criticism and controversy, some of which is described in the Joint Governments' submission. The Joint Governments submitted:
"Studies such as Card and Krueger's using new methodologies have helped enrich the empirical record on the relationship between employment and minimum wages, at least in describing the relationship between employment and minimum wages over a short term time-frame. At best, Card and Krueger's results shed doubt on the validity of the argument that employment is always hurt by an increase in minimum wages. However, the evidence simply never goes so far as to back the assertion that employment will rarely be negatively affected by minimum wage increases."
Moreover, the Joint Governments questioned the relevance to Australia of Card and Krueger's results. They emphasised the different roles played by minimum wages in the United States and award wages in Australia:
"It is worth noting, in this context, the large difference between US minimum wages and award wages in Australia. In particular award wage rates in Australia are set at a much higher level relative to both median and average earnings than in the US. Thus the `bite' in Australian award wage rates is much higher than that in the US."
The Joint Governments' submission refers to an OECD publication (The OECD Jobs Study: Evidence and Explanations, Part II The Adjustment Potential of the Labour Market, OECD Paris 1994), wherein the argument is advanced that an increase in wages in the short term will undermine employment when the bite is high but have only a small effect when the bite is low. We note, however, that the ACTU tendered an extract from the OECD Employment Outlook for July 1996 which discusses, among other things, the relations between institutional intrusions into the labour market, pay and employment. The following summary is provided:
"The analysis ... suggests that higher rates of unionisation and collective bargaining coverage reduce the incidence of low-paid employment. Other institutional factors, such as legal minimum wages set at high levels and generous welfare benefits, also appear to create a binding wage floor, and lower the incidence of low pay. The impact of these wage floors on labour market outcomes is uncertain. The simple correlations presented suggest that there is no significant tendency for employment to be lower and unemployment higher for inexperienced or low-skilled workers in countries where there are relatively few low-paid jobs available." [Material in Support of Section D of Exhibit ACTU 5, Tag 39 at p.40]
This assessment by the OECD, published some two years later than the study mentioned by the Joint Governments, appears to be more supportive of the ACTU's position.
The Joint Governments discussed the use made by the ACTU of Gregory and Duncan's inquiry into the effects of the equal pay decisions. They pointed out that Gregory and Duncan did identify a small adverse effect on female employment (associated with a change in the composition of output). Their principal contention, however, was that Gregory and Duncan's results have no direct relevance to the ACTU wage claim. Referring to Gregory and Duncan's explanation for their results, the Joint Governments said:
"They suggest that it was labour market segmentation along gender lines that worked to cause the low substitution between male and female jobs, and the low responsiveness of female employment to changes in relative wages. Gregory and Duncan point to historical wage discrimination, and women being `disproportionately represented in the labour force in jobs that require low levels of skill, offer below-average prospects for advancement, and provide few opportunities to cross over into the better-paid male jobs' as strong evidence of segmentation ... Thus the results reflected the particular characteristics of the female labour market at the time the equal pay decisions were made, in particular the high degree of segmentation. The equal pay decisions also reduced wage discrimination. Many female employees were being paid less than their marginal product before the equal pay decision and employers were able to pay these low wages because of the gender segmentation that Gregory and Duncan highlighted. When the equal pay decisions were implemented, there would have been little or no incentive for many employers to substitute male for female employees as in many cases female unit labour costs may have still been lower or equal to those for males. In addition, many males would have been reluctant to accept jobs in female dominated industries and occupations. It should also be noted that there was not a large effective supply of male employees ready to take the female jobs. This is highlighted by the fact that the male unemployment rate averaged only 1.9 per cent over the period 1969 to 1975."
In the Joint Governments' view, "there is strong Australian evidence to support the notion that large wage rises unsupported by improvements in productivity, have an adverse impact on both employment and output". They asserted that the wage break-outs of the mid 1970s and the early 1980s eroded profits and investment, contributing to subsequent economic downturns. They also referred to econometric estimates of the responsiveness of employment to average real wages in several OECD countries (including Australia). These estimates are reported in the OECD's 1994 study, which we have mentioned above. They can best be understood as answers to the question: How much lower will employment be for each one per cent increment in real wages? For Australia, the answer to the question is that after two years employment will be one per cent less. According to the submission, later estimates put the response somewhat lower - between 0.6 and 0.8 per cent.
The Joint Governments reported statistical estimates obtained by use of the Treasury's TRYM model [Exhibit Commonwealth 8 at p.135]. The model's predictions of the additions to the unemployment percentage which would be caused by the granting of the three stages of the Living Wage claim are shown in Table A.5. The submission states that, if the three stages were granted, there would be 400,000 fewer jobs in 1999-2000. (The increase in the unemployment rate would be moderated by the participation rate being lower than it otherwise would be.) A question from the Bench about the degree to which the predicted
Stage 1 |
All Stages | |
1997 - 98 |
¼ |
¼ |
1998 - 99 |
½ |
1 |
1999 - 2000 |
¾ |
2 |
effects were due to assumed policy responses by the Reserve Bank was the subject of a written reply [Exhibit Commonwealth 13, Attachment J]. This said that "given the complex interactions that lead to the model results, it is difficult to precisely isolate the influence of any one factor"; but "it is possible to obtain a feel for the relative size of various effects by isolating individual linkages". The answer continues:
"For example, of the increases in the unemployment rate from Stage 1 of the claim ... the direct effect of the increase in real wages is responsible for around one half in the first year, around one quarter in the second and around one eighth in the third year. The bulk of the remainder of the impact is associated with the assumed monetary policy reaction to the higher inflation flowing from the `living wage' claim."
The NFF provided estimates of the likely effects of the ACTU Living Wage claim, if granted, which were supplied by the Centre for International Economics. In preparing its estimates, the Centre made use of a version of the ORANI model of the Australian economy [Exhibit NFF 1, Attachment 1 at pp.4-5]. The ORANI model, however, is a general equilibrium model which incorporates an assumption that the wage is equal to the marginal revenue product. This was acknowledged by the NFF [Transcript pp.739-740]. Hence the prediction that a wage increase will adversely affect employment is inherent in the model and cannot be verified by it.
Both ACOSS and the Brotherhood of St. Laurence argued for wage increases to alleviate hardship among the low paid. (See Chapter 7 for outlines of their submissions about the needs of the low paid.) Each body discussed the question whether such increases would cause substantial additions to unemployment, negating the welfare gains which the wage increases were intended to achieve.
ACOSS cited several publications dealing with research into the relation between wages and unemployment [Exhibit ACOSS 1, pp.40-43]. Its broad conclusions were
· that employment is not sensitive to relative wages, so that reducing the gap between the wages of high paid and low paid workers would not significantly affect employment; but
· that there is, a danger that excessive aggregate wage increases will aggravate unemployment.
In the past, "excessive aggregate wage growth may have contributed to overheating in the economy, to which the monetary authorities responded with sharp increases in interest rates". For the future,
"the lesson for wage fixation in Australia is not that wage relativities should be widened. Rather, it is that effective mechanisms must be found to ensure that real aggregate wages growth does not substantially exceed improvements in productivity. While recent prices and earnings data suggest that the labour market is not at risk of overheating in the near future, this remains a major concern for the medium term, especially given the need for sustained economic growth to reduce Australia's excessive level of unemployment.
It is of concern to ACOSS that there appears to be no mechanism in place to ensure that the burden of wage restraint will be borne equitably in the future. It is possible that many relatively highly paid executives and other skilled workers will obtain wage increases through enterprise or individual bargaining that are significantly in excess of those available to workers on award rates of pay."
The Brotherhood of St. Laurence discussed various contributions to the international debate about the effects of increased minimum wages on inequality and unemployment [Exhibit Brotherhood 1, especially pp.76-79]. In particular, it referred to the International Labour Organisation (ILO) publication World Employment 1995 and the OECD Employment Outlook July 1996. The ILO concluded that wage reductions "would only have a meagre impact on unemployment" and that statutory minimum wages did not appear "in any general sense to affect aggregate unemployment". According to the OECD, countries where low paid work is less prevalent have not achieved this result "at the cost of higher unemployment rates and lower employment rates for the more vulnerable groups in the labour market, such as youth and women". The Brotherhood of St. Laurence argued that education and training are the key to increasing both employment and wages. There was not, or need not be, a trade-off between wages and employment. "Despite much debate", the Brotherhood of St. Laurence said, "the evidence suggests that centralised wage-fixing mechanisms, with the power to regularly adjust wage minima, can actively alleviate waged poverty".
In this section we refer to a public submission made by Emeritus Professor J W Nevile; a paper written by Professor R G Gregory; and two articles tendered by the BCA - one by Professors Peter Dawkins and John Freebairn and the other by Professor Judith Sloan.
Professor Nevile's submission is about "Minimum Wages, Equity and Unemployment". He writes in the introduction:
"Wages play a key role in the pattern of income distribution because they are the dominant form of income in our society, and especially the dominant form of market income or income before personal income tax is paid and social security benefits are received. From the point of view of equity what is happening to the wage rates paid to low income workers is one of the major features of our economy. Moreover, it has immediate and important implications for the social security system.
Hence, if one is concerned about the income of those toward the bottom end of the income distribution, the possibility of increasing minimum wage rates must be seriously considered. However, there is a possible downside. Some argue that raising minimum wage rates will increase unemployment. This too raises equity questions."
Professor Nevile discusses theoretical issues associated with the presumption that raising wages will damage employment. He concludes that part of his submission:
"To summarise, while neoclassical theory predicts raising minimum wage rates will reduce employment, this prediction rests on assumptions that have been widely challenged. Many observed aspects of the labour market are inconsistent with the assumption of perfect competition underlying neoclassical theory. Apparently identical workers are paid at markedly different wage rates. Implicit or explicit long term contracts are widespread. There are significant transaction costs in hiring and firing. Morale is important and workers may perform better just because wage rates are increased, and so on. In addition feedbacks from other markets are important and are not always easy to predict. The theory is such that it does not produce a convincing case for any stand on the issue except agnosticism. Hence empirical studies are all important.
One final point about the neoclassical theory of labour demand, which also highlights the need for empirical results. Even if one takes neoclassical theory at face value, it only indicates that raising wage rates will reduce employment; it does not predict how important this will be. The practical importance of the theory depends on the slope of the demand curve for labour. If a rise in the minimum wage causes a large fall in employment this is far more serious than if it only causes a very small fall in employment."
Professor Nevile surveys much of the empirical literature about the wages-employment relation, including many of the studies cited by the ACTU and the Joint Governments. He discerns a consensus "that rises in minimum wage rates had at most a very small effect in reducing employment". Despite this,
"... casual international comparisons have been used to support the argument that minimum wage rates can result in massive unemployment. In particular, contrasts are often made between the situation in Europe, especially continental Western Europe, and the United States. In Europe there are high minimum wage levels and unemployment is over 10 per cent in many countries. In the United States both the minimum wage rate and the level of unemployment are much lower. This contrast is striking: so much so that a few years ago it was almost conventional wisdom that OECD economies had a choice between wage rates so low at the bottom end that many full-time workers lived in poverty or massive unemployment."
Professor Nevile cites several studies relevant to the international comparison. He proceeds:
"These studies make more convincing an alternative explanation of low recorded unemployment rates in the United States compared to Europe. Mishra (1995) focuses attention on non-employment, which includes hidden unemployment, rather than on recorded unemployment, which does not. The non-employment percentage is just 100 minus the percentage employed i.e. it is a percentage of the population in the age group, not a percentage of the labour force. When the focus is on non-employment rather than unemployment, it becomes clear that the big difference between the United States and Europe is not that low minimum wages lead American firms to hire more unskilled workers, so much as poor and short-lived social security benefits lead more of the unemployed in America to drop out of the labour force altogether. If we look at males only (to avoid any possible cultural differences in the desire for paid work by married women) and look at males between the ages of 25 and 54 (to avoid any possible difference in things like school and university retention rates, retirement patterns and so on), then in continental European Community Europe 15 per cent of prime age males are not employed, compared to 14 per cent in the United States. Incidentally in the United Kingdom, whose labour market is more like that in the United States than are those in continental Europe, the figure is 18 per cent. In Australia the figure is 14 per cent, the same as in the United States despite very different labour markets."
In Professor Nevile's view, the weight of evidence from empirical analyses is that, "at least within the range of difference studied, high minimum wage rates have little or no effect on the employment of unskilled workers".
Professor Nevile's submission was, of course, available to all parties, but few referred to it. The ACTU included extracts from it in its submissions-in-reply [Exhibit ACTU 11 at pp.93-96]. In response to a question from the Bench, the Joint Governments provided a brief written comment [Exhibit Commonwealth 13, Attachment G]. This includes the following paragraph:
"The Joint Governments agree with Professor Nevile that modest rises in minimum wages are unlikely to have any significant impact on employment. This is one of the reasons we are supporting $8 safety net increases targeted at the low paid. However, our analysis of the literature leads us to the view that larger increases, particularly of the magnitude sought by the ACTU, will have an adverse impact on employment."
Professor Gregory's paper about "Wage Deregulation, Low Paid Workers and Full Employment" [Dialogues on Australia's Future, Sheehan P, Grewal B, & Kumnick M (eds), Centre for Strategic Economic Studies 1996] is one which we brought to the notice of the parties before the commencement of the substantive hearings; and it was also included in the supporting material tendered by the ACTU [Exhibit ACTU 5, Material in Support of Section D, Tag 25]. Professor Gregory compares the labour-market experiences of Australia and the United States over the period from the early 1970s to the mid 1990s. Over that period, employment grew much faster in the United States. Professor Gregory writes:
"While the rate of full-time job growth has been extraordinary, the US labour market has other characteristics which are not so attractive. The employment growth has not delivered income growth to most of the population. Over the 1979 to 1993 period adjusted real personal income of families from the bottom quintile fell 21 per cent, for the next quintile the fall was 7 per cent. For the middle quintile there was no change in income. Real family income only increased for the top 40 per cent of US families. There have also been large real wage falls. The growth of employment has been more that offset by falls in wages."
These and related observations lead Professor Gregory to say: "The key question therefore is whether Australia needs to move towards a labour market in which the least advantaged will experience substantial falls in living standards in order to generate stronger job growth".
Professor Gregory's answer to this question stems from his observation that in the two countries the relative rates of change in the numbers of high-paid and low-paid jobs have been much the same:
"It is remarkable that the pattern of employment outcomes for each country are so similar, even though the aggregate employment growth has been so different. The regulated Australian labour market, with low wage flexibility and the loss of one quarter of male full-time jobs, seems to have produced the same relative employment outcomes as the more flexible US labour market where the loss of male full-time jobs has been confined to one in twelve. It appears as though the difference between the countries must originate in factors which affect employment growth across-the-board and not in factors unique to the United States, which have allowed rapid job growth in low paid jobs."
Professor Gregory concludes that "it seems unlikely that greater relative wage flexibility will significantly reduce Australia's unemployment problem"; and that "the restoration of full employment will lie in a direction other than reducing the wages of the low paid". The arguments leading to these conclusions are more fully expounded by Professor Gregory.
Professors Dawkins and Freebairn were joint authors of an article entitled "A Living Wage is a Dead End", which was published in the Australian Financial Review on 2 November 1996 [Exhibit BCA 2]. Referring to the ACTU's Living Wage claim, they write:
"Further, it is much more likely that such a dramatic wage increase will increase unemployment, especially of those on low wages. The unemployment surges of the large wage increases in the mid-1970s and early 1980s should not be forgotten. Nor should the employment increase of the 1980s Accord period, when real wages fell, be ignored. In each experience, it took some years before the full effects of real wage changes on employment were felt and observed.
Commonsense and logic suggest that a sharp increase in minimum wages will have adverse effects on employment of those people with low skills. The opportunities for replacing workers with machines and for changing the product mix are much greater with unskilled labour."
Referring to Card and Krueger's studies, Professors Dawkins and Freebairn say that "many economists are reaching the conclusion that it would be unwise to base policy advice on their findings and that the accumulated evidence of a negative relationship between employment and wages, and the strong theoretical basis for that relationship, should be uppermost in our minds".
Professor Sloan's paper is entitled "Believe it or Not: New Evidence on the Effects of Minimum Wages" (also part of Exhibit BCA 2). This paper is a commentary on Card and Krueger's analysis. She considers that "the adverse effect of minimum wages on employment is a proposition that should still be accepted, notwithstanding the recent debate". Professor Sloan writes:
"To put our main conclusion another way, it would be a brave policy-maker who advocates higher minimum wages, especially to young workers, as a means of reducing unemployment. Even if the own wage elasticity of labour is relatively low - say -0.2 - a ten per cent rise in the minimum wage applicable to teenagers will induce a two per cent fall in their employment. Not only is two per cent of a relatively large number also a relatively large number, a two per cent rise in employment would be basis for some joy. A two per cent fall should therefore be cause for serious concern."
Despite her scepticism about Card and Krueger's findings, she concedes that "the impact of the recent research on minimum wage effects should not be downplayed". Moreover, "the fact that Card and Krueger have made the running in this renewed debate means that more up-dated research will be required to refute convincingly their claims".
This Attachment should be read in conjunction with Chapter 6.4.
From the ACTU's perspective, a regard to productivity growth is important because, without the Commission's intervention, a segment of the labour force will not participate in its benefits. One of the objectives underlying the Living Wage claim was that "the employees covered by the awards should be entitled to receive part of the increase in the wealth of this society" [Transcript p.5]. In its written submissions, the ACTU elaborated this principle:
"The granting of the Living Wage Case enables the equitable distribution of labour productivity growth to low paid workers. This is consistent with the longstanding principle in wage fixing that money wages should be adjusted for changes in the cost of living and effective productivity. Part of this process can occur through enterprise bargaining (and has occurred) whilst the remainder can only be done so through the granting of the claim by the Commission. In summary, workers have made a significant contribution to the economy in terms of restructuring and efficiency gains. This is borne out in evidence on productivity, both in historical terms and with international comparisons. As low paid workers are unable to gain the rewards of productivity increases through enterprise bargaining like other workers the appropriate way is to distribute their entitlement through the Living Wage application. This enables real wages as a whole to grow in line with advancements in efficiency and productivity." [Exhibit ACTU 5, Section C at p.119]
In a similar vein, the ACTU said:
"Workers have made an enormous contribution to the economy's structural improvement and competitiveness and deserve an equitable economic return. Some will be able to do so ( and have done so) through enterprise bargaining and overaward, some have taken more than their fair share through executive salaries and the like, whilst low paid will have no share, unless the Living Wage claim is granted. The AIRC, by granting the claim can ensure that low paid workers receive an equitable distribution of the growth in the economy." [Exhibit ACTU 5, Section C at pp.121-122]
In its submission-in-reply, the ACTU said that "several questions from the bench relate to the relationship between money wages, real wages, productivity, the terms of trade and the distribution of national income", adding that "it is important that these economic concepts be understood". The submission said:
"The ACTU introduced the role of productivity and the external accounts (particularly the terms of trade) into wage fixing. It was the ACTU that understood these economic concepts and their importance in wage-fixing. Eventually the employers adopted these issues and we are now subjected to repetitive references by the ACCI that `Productivity is the central issue' (ACCI 8, p.30) and `The key to everything is productivity' (ACCI 8, p.12) and `The focus must be on productivity' (ACCI 8, p.12)."
The ACTU recounted that in the 1959 Basic Wage Case [(1959) 91 CAR 680] two economists called as witnesses by the ACTU (the late Professors W E G Salter and E A Russell), discussed the implications of productivity for wages. Mr Russell (as he then was) said:
"For a country such as Australia the relevant measure of productivity must be one that takes into account both physical productivity and the terms on which part of its production is exchanged for imports from the rest of the world. Productivity in this combined sense, `effective productivity' in Dr Salter's terms, will give a measure of the command of the economy over real goods and services per person engaged. An increase in export prices or a fall in import prices gives increased command over goods and services as effectively as an increase in export production per person engaged with export prices unchanged.
If effective productivity increases by a certain percentage it will be possible to increase real wages by the same percentage and (if the level of employment is unchanged) real incomes other than wage incomes will, in the aggregate, increase in the same proportion. (If the level of employment changes certain qualifications must be made). It is this that we have in mind, I believe, when we say that an increase in productivity increases the capacity of the economy to pay a higher real wage."
According to the submission, "the ACTU introduced the importance of productivity - both external and internal - through the Salter/Russell evidence of 1959 [and] this has been part of wage fixing ever since".
The ACTU referred, further, to a paper published in 1987 by Emeritus Professor J. E. Isaac ["The Distribution of Productivity Gains", tendered as Tag No. 1 in Exhibit ACTU 12]. Professor Isaac discussed "the various ways in which productivity may theoretically be distributed:
(a) entirely by increased pay (and/or other benefits to labour);
(b) entirely by increased profits;
(c) by a combination of increased pay and profits each proportionate to productivity;
(d) entirely by lower prices;
(e) by a combination of increased pay and profits and lower prices."
In the economic context of 1986-87, Professor Isaac favoured option (d). The ACTU described differences in the 1996-97 context which, in its view, justify a different choice. Its argument proceeded:
"Drawing on the article by Isaac and the Salter/Russell economic evidence presented by the ACTU in the 1959 Basic Wage Case, we say:
1. There has been an increase in national income through improved `internal' productivity and `external' productivity (or `effective productivity') which offers scope for an improvement in real wages.
2. The low paid have not benefited from the increase in national income whilst profit shares have improved as have wages for some sectors through enterprise bargaining.
3. The economy has benefited through lower prices, but the lower the inflation rate, the less capacity there is to lower prices further (and proportionately less benefit to the economy from a lowering of prices)
4. A wage increase is necessary to ensure that employers invest and improve efficiency to improve the long-run productivity growth rate of the economy.
5. The conditions in terms of external accounts, low inflation and improved internal productivity favours a wage increase for the low paid.
6. The concepts of productivity and external accounts are important to wage fixing and have been a central part of ACTU submissions on wages and the economy.
7. Wage adjustment by the AIRC is the only mechanism by which award workers receive productivity based increases."
[The references to the ACTU submissions-in-reply in this and the previous paragraph all relate to Exhibit ACTU 11, subsection 3.6 at pp.103-111].
During the presentation of the ACTU's submissions-in-reply, the following exchange occurred:
"HANCOCK SDP: Insofar as you rely on evidence of Salter and Russell, I put it to you that it is fair to bear in mind that they were giving evidence in the context of general wage increases, not in the context of a world in which a large proportion of wage increases are determined by methods other than determination by the Commission, and Salter, indeed, was on record as putting a strong argument against productivity bargaining and the distribution of the benefits of productivity on an industry-by-industry basis.
Now, for better or for worse, our world is not their world; and is evidence given in the context of general wage increases - and maybe the same point applies to Isaac as well - equally applicable to a world in which we are attending to the award structure as a safety net, on your material applicable to a minority of the workforce?
MS JONES: Yes, we submit that it is because we rely on that for the reasons that I say, firstly, that we accept the point that productivity growth arises from various sources. That is a fact. We accept that and we have always put that, and what we submit is that whatever the system the Commission is in terms of these particular workers the only way in which productivity can be distributed equitably. Now, in the past that was the bulk of award workers. At the moment we are concerned with a small minority.
Nevertheless the principle of equity remains and the only basis, we submit, on which you could say that that is totally irrelevant and has no bearing is if, for example, one assumed that award workers contributed nothing to that share of productivity that was contributed by the labour force.
HANCOCK SDP: You see, my concern is that the kind of wage increases that the reasoning of Salter and Russell would allude to may now have been pre-empted by the enterprise bargains.
MS JONES: So Your Honour is saying that whatever has been achieved in productivity has been handed out already and there is nothing left to - - -
HANCOCK SDP: Well, it may be. We cannot assume that - - -
MS JONES: Well, we would have to say that - we would have to judge that against the factual circumstances that we attempted to deal with earlier, which is that it would be - one would have to conclude in order to support that conclusion that award workers do not contribute one iota to productivity growth.
HANCOCK SDP: No, no. It may be that their entitlement has been stolen.
MS JONES: Well, we do not see productivity as a stored - we argue that productivity is an ongoing, that the reform process, the flexibility, the efficiencies are ongoing and that there is not some stored amount of productivity which has already been claimed by EBA workers. Our position is that the award reform process of flexibility and the efficiencies, the changes at the workplace under which award work is not covered by enterprise agreements is ongoing and just does not stop." [Transcript pp.1177-1178]
ACCI criticised the ACTU for either failing to have regard to the productivity criterion or misapplying it. In its principal written submissions, it said:
"The fifth principle proposed [by the ACTU] involves a general statement of the obvious, that employees should be entitled to receive part of the increase of wealth in society. However, there has always been serious disagreement about the extent to which and in what proportions this wealth should be distributed. Part of that wealth is now being distributed through enterprise agreements . . .
The ACTU goes on to make a number of generalised claims, including the claim that there is a right of all Australian workers to a decent standard of living [p.5]. It is not clear where this `right' comes from, given that the Australian standard of living is based on the productivity of the private sector, and if that productivity is not sustained then the standard of living will decrease . . .
Any award in excess of the productivity of industry is not sustainable. A more appropriate normative principle for the Commission to adopt would be that wage increases must be based on productivity improvement, and wage levels to be maintained must be based on an efficient, competitive and productive private sector." [Exhibit ACCI 7, at pp.58-59]
ACCI further contended:
"The ACTU argues that it is difficult to make ends meet and that individual employees would like to earn more than they already do. In doing so, the ACTU makes an extremely strong case for raising productivity. There is no magic pudding - wages can only rise in the aggregate if output per person also rises. We as a community can only buy what we as a community produce. There is, of course, the issue of exports and imports within that statement. Nevertheless, seeing as Australia must pay for its imports with its exports, it is the fact the community can only buy what that community has produced. Productivity is the central issue. How productivity can be raised should be the central issue to be determined." [Exhibit ACCI 8, section 1 at p.30]
ACCI perceived the ACTU's endeavour to improve the relative position of a sector of the labour force as an attempt to redistribute the benefits of past productivity growth:
"One of the foundations for the ACTU Claim is that it sees the granting of an increase to the lowest paid being part of distribution of productivity growth. Moreover, it is past productivity growth that the ACTU refers to, not the expected productivity growth over the period ahead . . . And the point made is that productivity has already distributed to some, such as those who are covered by enterprise agreements. But the rest of this growth in productivity must now be distributed to others, and in particular the lower paid. Again the ACTU is subject to the fallacy that productivity is some kind of stored commodity which can be kept on ice until such time as the Commission or someone else makes a decision to distribute it." [Exhibit ACCI 8, section 1 at pp.17-18]
In connection with this submission, ACCI referred to the decision of the Australian Conciliation and Arbitration Commission in the June 1986 National Wage Case (the Productivity Case) [26 June 1986 (1986) 301 CAR 611]. The Commission then said:
"The relevant productivity against which to set off any future increased labour costs arising from benefits to wage and salary earners, is future productivity. The trend figures presented to us are no more than a guide as to what may be reasonably expected from productivity improvement in the near future. The determination of these trend figures, as the Working Party points out, is only a first step and `judgement must be made as to how far allowance should be made for the fact that the future may not follow [the] same pattern as the past'."
According to ACCI, productivity, rather than nominal earnings, determine real earnings, except in the short term. ACCI said:
"As we have noted repeatedly in the past, the growth in real earnings over time has virtually nothing to do with growth in nominal earnings. It is, of course, possible for nominal earnings to rise rapidly over the short term and in this way push up the real level of earnings but the consequence of doing that is an almost immediate increase in the rate of unemployment . . .What is not achieved through a higher productivity cannot be kept or sustained. Real earnings growth is dependent upon improvement in productivity. Attempting to help the lower-paid or any other classification of employee simply by raising money wages will not improve their standard of living unless there is also an increase in productivity at the same time. Unless wage-earners are in general producing more they cannot earn more in real terms." [Transcript p.539]
A short-term increase in real earnings, brought about by an excessive increase in money wages, would not only lead to a rapid increase in unemployment but would be followed by "a virtual standstill in the subsequent growth in real earnings" [Transcript p.560]. In answer to a question from the Bench, ACCI provided an historical comparison of movements in nominal and real earnings over decennial periods (Table A.6). Referring to the relation between nominal
Ten Years Ended |
Nominal Male Average Weekly Earnings |
Real Male Average Weekly Earnings |
|
1962-63 |
4.6 |
2.3 |
1972-73 |
7.6 |
3.7 |
1982-83 |
13.5 |
1.8 |
1992-93 |
6.0 |
0.1 |
and real increases shown in the table, ACCI said:
"These figures highlight just how little it is nominal wage movements which create the conditions for real wage movements. It is instead the underlying productivity that matters.
Moreover, as the fourth period on the table shows, over the ten years from 1982-83 to 1992-93 the real increase has been only 0.1% a year. This is, in our submission, the result of the economy trying to accommodate itself to the consequences of the wage explosions. It is also to some extent a reflection of the slower growth in investment which has been the case since the mid-1970s. Australia has been literally living off its capital since that time which is making it continuously more difficult to raise living standards." [Exhibit ACCI 13 at p.3]
ACCI provided a written answer to a question about the economic circumstances which would justify a wage increase and the order of increase appropriate to such circumstances:
"ACCI is a strong advocate of a proper safety net level of wages. A safety net would be a minimum wage in the true sense of a minimum wage. It would be the lowest hourly rate of pay payable to any full-time adult employee. Adjusting the minimum wage would occur from time to time in accordance with changes in the circumstances of the economy.
What ACCI is opposed to are across-the-board increases of all award rates at one and the same time. Such increases add to inflationary pressures, add to business costs, maintain upwards pressures on interest rates and undermine the process of enterprise bargaining.
The question ... asks under what circumstances a wage increase should be granted, that is, under which circumstances should a National Wage Case increase be granted.
There are few economies which retain a system of wage fixation in which a national increase is granted which flows across one enterprise after another without reference to the individual circumstances of the workplace. Australia is unique in retaining this system of wage fixation.
Most developed economies have a minimum wage which is periodically adjusted. But none now has a system by which the wages paid to a large proportion of wage earners in a large proportion of enterprises are adjusted at once. It is this aspect of the Australian system of wage fixation to which business is in principle opposed.
ACCI is in favour of wage increases. But wage increases should be determined at the enterprise level." [Exhibit ACCI 13 at p.37]
ACCI's position appears, then, to be that award wages generally should not be adjusted for productivity (or for any other reason). Wage earners should achieve increases through enterprise agreements. The safety net would consist of a minimum rate which would be adjusted from time to time, possibly with regard to national productivity.
A concept whose purpose is relevant to the debate about productivity and wages is "real unit labour costs" (RULC). The calculation of RULC involves "deflating" nominal labour costs per hour worked by output prices and productivity. If RULC rises, the real cost of employing labour is growing faster than productivity; if it is constant, real labour costs grow at the same rate as productivity; and if it falls, real labour costs fail to keep pace with productivity. The concept made its appearance in arbitral proceedings as an indicator of the extent to which the growth of nominal wages in the period 1973-75 had caused real wages to rise relative to productivity; and the argument was then advanced that the high level of RULC was a significant cause of unemployment. Indices of RULC are compiled by the Commonwealth Treasury, one for the private non-farm corporate sector and the other for the non-farm sector. Labour costs, as identified by the Treasury, are wages, salaries and supplements, payroll tax (less employment subsidies) and fringe benefits tax.
The ACTU noted that RULC has fallen to levels "lower than they were in the 1960s" [Exhibit ACTU 5, Section E at p.28]. The Joint Governments said:
"The growth in non-farm labour productivity over recent years has largely matched growth in real labour costs. Accordingly, real unit labour costs have remained at historically low levels - similar to those of the late 1980s and well below those of the mid-1970s and early 1980s." [Exhibit Commonwealth 8 at p.75]
Chart A.1, provided by the Joint Governments, shows non-farm RULC in the period 1969-96.
ACCI, in its primary submission, criticised the use of RULC to measure the pressure of labour costs:
"ACCI has been deeply critical of the use of Real Unit Labour Costs in the past and we remain just as averse to their use in this case. ACCI, or its predecessor organisation CAI, never used Real Unit Labour Cost measures, even when they were rising and purported to show an increase in the cost of labour, because we believe that they are fundamentally flawed by their very nature.
Structural change in the economy makes this measure useless for longer term comparisons. Because of the continuing change in the nature of production, with changes in the actual composition of the economy taking place on a continuous basis, putting together the components of this series produces a series which is in essence pure nonsense.
What demonstrates how inappropriate this measure is that the index for Non-Farm Real Unit Labour Costs is now at 97.9 while for Private Non-Farm Corporate the index is at 99.4 with the base of the index being average 1996/67 to 1972/73 equals 100.
When this measure was first introduced by the Commonwealth Government the point it was trying to make was that if only we could get back to the level achieved at that earlier date then we could once again return the labour market to full employment. That is, the base years were also years of virtually no unemployment therefore, it was asserted that if the index could be again lowered to that rate, unemployment would also return to the level of that earlier period.
As we can now see, this has not been the case. The index, however it is measured, has fallen below the base period benchmark. Nevertheless, the unemployment rate is much higher than it was at that time. Nor should we be surprised to find that this is the case. Structural change in the economy makes it a virtually worthless indicator of competitiveness or the burden placed on industry by the cost of labour.
Perhaps over a one or two year span there may be some useful information gleaned from this index, but if there is, it is quite minimal.
The use of Real Unit Labour Cost, as with wage and profit shares, simply compares the present to a bygone era in which the economy was structurally entirely different. Whether the index is higher, or lower, than it was at that past date can tell us nothing at all about what ought to be done in this economy at this time." [Exhibit ACCI 8, section 1 at pp.25-27]
This attack on RULC led to a question from the Bench, to which the ACCI replied in writing. The question was:
"You record the fact that ACCI and its predecessors have resisted the use of this concept of real unit labour costs and you give some reasons for that. The question I want to put to you is: does that concept not line up very closely with ACCI's view about the pre-eminence of productivity as a determinant of what the economy can provide for wage earners? Cannot it be said that if real unit labour costs rise wage earners are racing ahead of productivity and if real unit labour costs fall wages are tending to lag behind productivity?
[Given ACCI's position] how can you object to looking at real unit labour costs?" [Transcript pp.566-567]
In its reply (quoted only in part), ACCI said:
"In a very important sense we agree . . . that the concept underlying Real Unit Labour Costs (RULC) lines up with our view about the pre-eminence of productivity as the central determinant of what the economy can afford in higher wages. This is the relationship that matters.
But our concerns at the use of this measure stem from the rigid conception that has been attached to it over the years. This is a concern which arose during the wage cases of the 1970s when the discussion was about what was then known as the `real wage overhang'.
Our concern with the use of the Real Unit Labour Cost measure is the same. As a conception we find it in accord with our views. But between the conception and the measurement there is a very wide divide. And what has made ACCI even more wary of it was the use in the early years of the 1980s to demonstrate that the economy was back on track towards full employment.
The base period, 1966-67 to 1972-73 equal to 100, was chosen specifically because they were the years of very low rates of unemployment. It was then argued that getting the index back down to 100 would, virtually of itself, return the economy to full employment. But the reality is that while the index has now fallen to a figure of less than 100, the labour force is far from being fully employed.
. . . [W]e accept that movements in this measure can provide some useful information particularly over short periods of time. But no statement about the level of the index in relation to some point in the distant past makes much economic sense and we reject the use of this measure as a legitimate means to examine current economic conditions.
It is true that the Real Unit Labour Cost measure does attempt to capture in a single number the argument that we have pursued in our submissions. . . It attempts to capture the relative movement in wages and productivity to indicate the extent to which the growth in wages is based on improvements in the productiveness of the underlying economy.
But as ought to be obvious, the RULC index has fallen to its base period level but knowing that one fact provides little in the way of an indication of the state of the economy and the level of unemployment.
Our quest for productivity growth is a quest for higher levels of investment, particularly in the private sector. The kinds of indicators we look to are rising rates of investment, falling rates of unemployment and rapid improvements in living standards. Nor should these occur only on an intermittent basis, but instead should occur on a regular basis and become a normal feature of economic life.
There was such a time. During the base period of the RULC index that was how the economy behaved. But as our longer term analysis showed, there has been a weakening of each of these important indicators." [Exhibit ACCI 13 pp.14 and 17]
The comments which follow are supplementary to, and elaborate upon, those made in Chapter 6.4.
We take it to be a matter of consensus that productivity is a major determinant of the average real wages which the economy yields; and we fully accept this assessment. In the long term, productivity is almost certain to emerge as the principal cause of changes in living standards, as it is of differences in the standards achieved in different countries. The Commission's task, however, goes somewhat further than recording this generalisation, important though it is. The contrary views of the ACTU and ACCI raise questions about the appropriate wage adjustments which arise once the fundamental role of productivity is accepted.
There is not a rigid relation between labour productivity and real wages. The history of RULC demonstrates this. ACCI's critique of the use made of RULC is justified inasmuch as it tells against any assumption that the economy can as easily support a given RULC at one time as at another. This militates against a "prices plus productivity" rule. That rule is one for preserving the wage share in the value of production, as Professor Russell noted; but whether or not the share existing at a particular time can or should be re-imposed is a contestable issue. Equally, however, the variability of RULC and the need to consider the effects of its being at different levels call into question the emphasis accorded to productivity in ACCI's primary submission. Rather than simply adopting the notion that "productivity determines real wages", a tribunal with control over the general wage level needs to consider whether RULC (or some surrogate therefor) should be raised or reduced.
The implications of this for decisions about money wages are not simple. Even if the Commission were in a position (as it is not) to prescribe the money wages of all wage-earners, it would not have an equivalent control over real wages; for the Commission does not determine prices. The Commission's ability to influence real wages would depend upon the existence of a degree of "stickiness" in prices. That is, it requires that prices do not immediately and proportionally adjust to higher or lower money wages. The "stickiness" of prices may be affected by the economic environment or other policy interventions (for example, by the Reserve Bank). If the circumstances were such that the Commission, by raising money wages, could effect a significant increase in real wages (and RULC), it would need to consider other economic effects, including any impact on employment. We are not persuaded, however, that money wage increases play no role in protecting and increasing real wages. Wage increases may cause price increases, but they are not the only cause. Salter and Russell, as we understand their evidence in the 1959 Basic Wage Case, were concerned about pressures upon the domestic price level coming from abroad in the form of higher export and import prices. The force of such pressures may be diminished by the demise of fixed exchange rates. Nevertheless there are other non-wage influences bearing upon the rate of change of prices, including the stance of the monetary authority, expectations and the intensity of competition. In logic, the lack of correlation between money wage and real wage increases, which ACCI discerned in its decennial analysis (Table A.6), is consistent with wages reacting to the effects on prices of these other forces and thus averting alterations in real wages which would otherwise have occurred. The nature of the inflationary process cannot be identified from statistics as crude as those presented in Table A.6.
Because the relation between prices and wages is uncertain, and possibly not constant, we have misgivings about the practical value of the notion of a "menu" of methods for distributing productivity growth. To suggest, for example, that a given growth of real wages can be effected equally by raising money wages pari passu with productivity or holding money wages constant while prices fall is to assume a rigidity in the wages-prices relation which probably does not exist.
Although we agree with ACCI that decisions about award wages should not be derived from rules which imply that some earlier relation between wages and productivity was correct, we reject the contention that only future productivity is relevant. It is a truism that what has already been distributed is no longer "in the pot" awaiting a decision about its distribution. The decision to be made has future, not past, effects. But it does not follow that developments in the recent past are irrelevant to the decision. Recent trends in wages, prices and productivity have a bearing on both the equity of money wage increases and the economy's capacity to sustain them.
DECISION OF VICE PRESIDENT ROSS
Contents
Page
3.1 Overview 5
3.2 Concluding Remarks 11
4.1 The Needs of the Low Paid 12
4.1.1 Defining the Low Paid 12
4.1.2 The Circumstances of Low Paid Employees 29
4.1.3 The Social Safety Net 38
4.2 Living Standards Generally 47
4.2.1 Definition Issues 47
4.2.2 The Earnings Gap 50
4.2.3 Increasing Inequality 52
4.2.4 Social Ramifications 55
5.1 The Alternatives 58
5.2 Award Increase 61
5.3 Cost and Economic Impact 65
5.3.1 General 65
5.3.2 Joint Governments Cost Estimate 66
5.3.3 Minimal Indirect Effects 69
5.3.4 Aggregate Wage Outcome 75
5.3.5 Bargaining Outcomes 77
5.3.6 Employment Effects 78
5.4 Maintaining an Incentive to Bargain 88
Page
5.5 The Needs of the Low Paid and Living Standards Generally 90
5.6 Award Simplification 92
5.7 Skill Based Career Structure 95
5.8 Gender Differential 96
5.9 Safety Net Adjustment 97
The claims before the Commission and the background to these proceedings are dealt with in the majority decision.
I agree with the decision of the majority to reject the claim of the ACTU and unions and I do so for broadly the same reasons. In particular I would reject the claim because:
(1) There is a serious risk that the direct effect of wage increases of the magnitude sought would increase Average Weekly Ordinary Time Earnings (AWOTE) to a level which would seriously threaten inflation and potentially lead to a tightening of monetary policy, which in turn could result in reduced economic and employment growth.
(2) The indirect effects associated with the level of wage increase sought could be substantial.
However I do not agree with the quantum of arbitrated safety net increase awarded by the majority nor with the conditions attached to that increase.
I propose to outline the factors which are relevant to the adjustment of the award safety net and to then consider these factors in some detail.
Following a discussion of the relevant economic and social factors I will set out the decision I have come to and the reasons for my decision.
The proclamation of the Workplace Relations and Other Legislation Amendment Act 1996 (Cth) resulted in a number of changes to the statutory framework within which the Commission operates. The main legislative changes of relevance to the determination of the claims before the Commission are set out in the majority decision.
I agree with the majority view that s.88B is central to our determination of the ACTU's wage claim. Section 88B(1) tells us that we must perform our functions under Part VI in a way that furthers the objects of the Act, and, in particular, the objects of Part VI. Section 88B(2) tells us that, in performing our functions under Part VI, we must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained having regard to the matters specified in paragraphs (a), (b) and (c).
Subsection 88B(2) provides:
"(2) In performing its functions under this Part, the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained, having regard to the following:
(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;
(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;
(c) when adjusting the safety net, the needs of the low paid."
The objects of Part VI of the new Act are set out in s.88A in the following terms:
"The objects of this Part are to ensure that:
(a) wages and conditions of employment are protected by a system of enforceable awards established and maintained by the Commission; and
(b) awards act as a safety net of fair minimum wages and conditions of employment; and
(c) awards are simplified and suited to the efficient performance of work according to the needs of particular workplaces or enterprises; and
(d) the Commission's functions and powers in relation to making and varying awards are performed and exercised in a way that encourages the making of agreements between employers and employees at the workplace or enterprise level."
Other relevant provisions of the Act are:
_ Section 90 which requires the Commission to take into account the public interest, and for that purpose to have regard to:
_ Section 3 which provides that the principal object of the Act is "to provide a framework for cooperative workplace relations which promotes the economic prosperity and welfare of the people of Australia" and sets out various means for its achievement, including by:
(i) for wages and conditions of employment to be determined as far as possible by the agreement of employers and employees at the workplace or enterprise level, upon a foundation of minimum standards; and
(ii) to ensure the maintenance of an effective award safety net of fair and enforceable minimum wages and conditions of employment [s.3(d)].
_ Items 47, 49 and 51 of the Workplace Relations and Other Legislation Amendment Act 1996 which require the Commission to review awards to ensure that they:
The factors relevant to the adjustment of the award safety net can be conveniently grouped into three categories:
_ Economic - the likely effects of any adjustment on the state of the economy with particular reference to the impact on employment, productivity and inflation;
_ Social - the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community with particular reference to the needs of the low paid; and
_ Bargaining - encouraging the making of agreements between employers and employees at the workplace or enterprise level by maintaining an incentive to bargain.
There is no particular priority to be assigned to these factors. The Commission is required to have regard to each of them. The most difficult issue is, of course, the balancing of each factor in circumstances where they conflict. This is a matter of judgment and outcomes will vary with the industrial, economic and social circumstances existing at a particular point of time.
I will deal with the economic and social factors relevant to the determination of the matters before the Commission in sections 3 and 4. The factor dealing with the maintenance of an incentive to bargain will be addressed in my reasons for decision in section 5.
The Commission is required to have regard to economic considerations in reaching its decision and to balance those considerations with others to which the Commission is directed by the Act. In this regard, I note that:
_ The reductions in the rate of unemployment which began in late 1993 or early 1994 stalled in mid-1995 with little change since that time. The unemployment outcomes reflect employment growth patterns over the same period, with strong employment growth of 6 per cent between December 1993 and June 1995 being associated with reduced unemployment over that period and relatively weak employment growth of 1.8 per cent between June 1995 and December 1996 being associated with the cessation of the earlier improvement in unemployment. The most recent data shows that between December 1996 and February 1997 employment grew (on a trend basis) by 16,700 persons and unemployment remained constant at 8.6 per cent.2
_ Growth in economic activity, as measured by Gross Non-Farm Product, having recovered from a negligible level in 1991-92, to 5 per cent in 1993-94 has declined over the last two years to below 4 per cent. As noted in the majority decision the reduced level of growth in economic activity is closely related to the lesser employment growth and stagnation in unemployment since mid-1995 which is noted above.
_ Since 1992-93 there has been a growing discrepancy between the level of growth in AWOTE and increases in award rates of pay.
Between 1991-92 and 1995-96 AWOTE grew by 14.1 per cent, compared with growth in award rates of 5.4 per cent. Over the same period, the implicit price deflator for private consumption grew 8.1 per cent. 3
In real terms AWOTE rose by 5.6 per cent, whereas award rates fell by 2.5 per cent over the period 1991-92 to 1995-96.
_ Following a minor increase in 1995, the rate of inflation, both actual and underlying, has decreased through 1996. The underlying rate, which abstracts some seasonal and one-off factors, rose by 2.1 per cent in the year to the December quarter 1996.
_ Over the past five years Australia's productivity performance has improved significantly compared to the 1970s and 1980s in Australia and relative to the OECD as a whole. Market Sector Gross Product per hour worked has increased strongly in the late 1980s, levelled off for two years in the early 1990s and risen strongly since 1990-91.
The Joint Governments, in their submission, associate the pick-up in Australia's productivity performance with the first steps toward enterprise bargaining under the previous Government and suggest that "enormous potential" exists for further productivity gains in the context of the present Act.4 This analysis seems to support the prospect of at least a continuation of recent strong productivity growth into the future.
Such a positive outlook is supported by a paper by Lowe on labour productivity in the period 1978-1994. Lowe concluded that:
"While picking changes in the trend rate of labour-productivity growth is a difficult task and is subject to considerable uncertainty, there is little evidence to suggest that the experience of the 1980s is the right benchmark. While the evidence is still unclear, the signs appear to be emerging of a faster rate of trend labour-productivity growth."5
_ Whilst there is some divergence in the indicators of profitability, and considerable debate as to their meaning, it is clear on the data provided that the private corporate profit share (defined as the gross operating surplus for private corporate trading enterprises as a share of gross domestic product at factor cost) has been trending upward over the 1990s and continues to be at historically high levels. The two main survey measures of company profits referred to by the Joint Governments show divergent trends over the last year. Real company profit data relied upon by ACCI shows some moderation in profits since mid-1994, but levels which remain in excess of those recorded over the whole of the late 1980s and early 1990s. Overall it appears that, notwithstanding some recent pressure on profits, profitability remains historically strong and there exists no imbalance reflected in profit data which would require undue caution when considering the economic effects of any award made. As noted below, the Joint Governments foresee a positive continuing outlook for profits in 1996-97.
_ Following a significant reduction in private sector investment as a proportion of Gross Domestic Product in the late 1980s and early 1990s, such investment has grown since 1992, albeit with a decline in early 1995 and growth resumed in 1996. Gross private fixed capital expenditure (in constant prices) in the September quarter of 1996 was 8.4 per cent above the level of the September quarter of 1995.6
The outlook for 1996-97 is extremely positive, with the Joint Governments observing:
"Growth in business investment is expected to strengthen in 1996-97, consistent with a positive investment environment. Aggregate capacity utilisation remains high, business confidence is positive and profits are expected to continue rising, maintaining the corporate profit share and the net rate of return on the corporate capital stock around current levels."7
In this context it should be noted that the Reserve Bank has referred to investment as "the linchpin of forecast growth".8 ACCI also emphasised the role of investment in economic growth:
"It is important to keep in mind that it is investment which finances growth and further levels of prosperity. Investment adds both to the size of the capital stock and to its efficiency. More modern technologies are more productive so that higher rates of investment not only broaden the capital stock of the nation but they deepen it as well."9
In the course of their submission on the economy the Joint Governments concluded:
"Fundamental economic influences are likely to remain positive in coming years, supporting continued solid growth in activity and employment, and further falls in unemployment."10
However I note that the Joint Governments also submitted that wage developments remained the most important factor influencing the inflation outlook, prospects for employment growth and the economy more generally.11
The 1996-97 Budget Papers made the following comment on the domestic economic outlook:
"Australia's economic outlook is for another year of strong growth. The international economy remains supportive, the underlying economic fundamentals continue to be favourable and policy is directed at raising Australia's long-term growth potential. Of particular importance for the 1996-97 outlook, inflation is subdued, asset prices are stable and business and consumer confidence remain positive, while corporate profits and the net rate of return on investment are both healthy. In addition, the constraining influences of the housing and stock cycles felt through 1995-96 appear to be waning."12
This favourable outlook was confirmed in the Mid-Year Economic and Fiscal Outlook 1996-97 which stated:
"The economic outlook remains favourable. Growth in GDP of 3½ per cent is expected in 1996-97, unchanged from that forecast at budget time, accompanied by moderate, but continuing employment growth, and low inflation. The composition of growth is now expected to be a little different, with stronger business investment and an easing in private consumption relative to budget time. Forecast employment growth is unchanged from budget time. The outlook for inflation has continued to improve. Underlying inflation is now forecast to be 2 per cent in the year to the June quarter 1997, significantly lower than anticipated at budget time, while the current account deficit is now forecast to be slightly lower as a share of GDP."13
The Mid-Year Outlook revised a number of Budget forecasts and these are summarised in Table 1 below:
(a) Percentage change on preceding year unless otherwise indicated.
(b) Real GDP or gross national product.
(c) Average 1989-90 prices.
(d) Percentage point contribution in GDP (Average measure).
(e) Through the year to June quarter.
(f) Average earnings (national accounts basis). Excluding the expected impact of additional Commonwealth voluntary redundancies, forecast earnings growth is 4¼ per cent in 1996-97.
(g) Estimate for the June quarter.
The improved outlook for business investment and the lower than originally forecast level of inflation and wages growth are particularly significant. The downward revision in the inflation forecast, with underlying inflation now expected to be 2 per cent in the year to the June quarter 1997 rather than 2.75 per cent as forecast at Budget time, was explained in the following terms:
"The downward revision to the budget time forecast reflects the better-than-expected September quarter outcome and an improved outlook for growth in nominal unit labour costs as a result of slower growth in average earnings and growth in labour productivity in excess of its historical average."15
On a negative note, unemployment is expected to be slightly higher in the June quarter 1997 than originally forecast.
The medium term scenario reflected in the Mid-Year Statement is for stronger growth and an improved inflation outlook relative to that assumed at budget time.16
In summary, recent economic indicators and the outlook for the immediate future disclose a relatively positive economic environment. While continuing high unemployment and recent stagnation of employment growth associated with limited levels of economic growth is a cause for concern this must be balanced against the positive outlook for growth, productivity, inflation and business investment. The major economic indicators considered are reasonably positive or, at least, do not suggest any basis for undue caution in addressing the claims before the Commission.
In particular inflation remains low and is expected to remain so in the immediate future. The poor recent performance of profits suggests some caution but the outlook for 1996-97 is reasonably good and there is no evidence of an imbalance in relation to profits which would require special attention. The outlook for business investment and an improved productivity performance is particularly positive and this should provide a stable platform for future growth.
On balance, I am unable to discern any particular or unusual economic factor which would impose a special constraint upon the Commission. On the contrary, other than unemployment, recent general economic conditions and the immediate outlook of reasonable profitability, improved productivity, strong business investment and a low underlying inflation rate provide a reasonably positive environment in which some attention might be directed to the needs of the low paid.
Section 88B(2)(c) of the new Act provides that the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained, having regard to, among other things:
". . . (c) when adjusting the safety net, the needs of the low paid."
In order to give effect to this statutory requirement it is necessary to define what is meant by the low paid. A number of proposed definitions were advanced in the proceedings before us.
The Joint Governments submitted that the low paid are persons "in receipt of relatively low wages in the sense that they are on classifications towards the lower end of the classification structure and have commensurate low pay rates".17
ACCI expressed a similar view and submitted that classifications at the C14 to C12 level in the Metal Industry Award 1984 - Part I were low paid.18
Mr Boland, on behalf of the Joint Employers, stated:
"We have found it difficult, along with others, to define in a specific way low pay and to that extent we have made a somewhat arbitrary judgment which involves applying the low end of the Reserve Bank's inflation target range, namely two per cent, to the C11 rate under the Metal Industry Award and this gives $8 to the nearest dollar.
The C11 level under that award is that level immediately below the trade or equivalent level. We have taken the view that employees employed at C11 or below in general have less bargaining power in the market than those with skills manifested by trade qualifications or above and that this is where the greatest need probably lies. We note that the deponents of the affidavits tendered by the MTFU in these proceedings to support its argument regarding the needs of the low paid were employed in below trade classifications, namely C13 and C11 under the Metal Industry Award."19
In addition to its support for the Joint Governments' submission the State of Western Australia (WA Government) made a submission for the purpose of providing the Commission with information regarding the approach of the WA Government to the establishment of a needs based minimum wage for employees in WA.20
The Minimum Conditions of Employment Act 1993 (WA) provides that full-time, part-time and casual employees are entitled to a minimum weekly rate of pay. Section 14 of the Act requires the WA Industrial Relations Commission to review the minimum weekly rates of pay annually and to make recommendations to the Minister. The Minister, under s.15 of the WA Act, then determines the minimum weekly rates of pay by either accepting the Commission's recommendation or determining a different rate.
In October 1996 the Minister published a weekly minimum rate of pay for adults of $332. This determination was based on a report provided by Professor Plowman of the Graduate School of Management at the University of Western Australia (with Professor John Taplin and Dr John Henstridge). Professor Plowman used the Household Expenditure Survey published by the ABS to quantify what was described as "seasonal expenditure" by an "individual for whom the Western Australian minimum wage was relevant - an adult, unskilled, living alone with no dependants".
The methodology used by Professor Plowman is considered in more detail in the majority decision. It is sufficient that I note that he relied on actual expenditure as a means of determining need. Such an approach assumes that current expenditure reflects current need and ignores the fact that such expenditure is income constrained.
I do not find the submission of the WA Government to be persuasive or of assistance in the determination of the matters before the Commission.
The ACTU argued that there are fundamental difficulties associated with defining a low paid worker in a mechanical or absolute way. In particular, use of a monetary amount as a cut off point or threshold in defining low paid workers may be sensitive to slight movements in earnings. It was submitted that a broad approach must be adopted in order to take account of diverse household circumstances.
The ACTU examined wage earner household expenditure across the lowest income quintiles relative to expenditure by comparable households in higher income quintiles. The focus was on the adequacy of award wages, in terms of prevailing living standards as reflected by actual expenditure. Using this method the ACTU sought to illustrate what people miss out on due to the fact that they have restricted budgets.
While opposing a mechanical or absolute definition of low paid employees the ACTU and unions made it clear that their claim was directed to benefiting employees who:
Accordingly it may be inferred that the ACTU and unions regard such employees as low paid.
The State of New South Wales submitted that employees on award rates of pay who received "no, or low levels of, overaward payments and/or have not received monetary adjustments from industry settlements or enterprise bargaining" should be regarded as low paid.22
ACOSS23 did not support any particular definition of the low paid but rather submitted that in order to set benchmarks for income adequacy a number of steps must be taken:
(1) the objective of an adequate income must first be clearly expressed (for example, "to prevent poverty" or to achieve a "standard of living that would be considered adequate by most Australians";
(2) a benchmark household type should be selected;
(3) the relevance and usefulness of existing benchmarks of income adequacy, for example poverty lines, should be critically assessed against the objective, or a new benchmark should be designed if these are inappropriate;
(4) these benchmarks should be tested against indicators of actual living standards using social research techniques such as surveys and focus group research.
In my view the approach proposed by ACOSS is a logical way of approaching the task of defining the low paid.
In terms of an appropriate objective there is no absolute measure of income inadequacy which can be applied across all cultures and nations. Poverty is essentially a relative concept: what is regarded as poverty in Australia would not be so regarded in other countries.
The 1975 National Poverty Inquiry (the Henderson Commission) did not explicitly define poverty, but its preface quoted approvingly from a Canadian definition to the effect that:
"Poverty is not only a condition of economic insufficiency: it is also social and political exclusion." 24
In these proceedings the Brotherhood of St Laurence defined adequacy as:
". . . access to those goods and services that would be considered necessary within the general community for participation in community life as an ordinary citizen. In relation to workers it would also include the capacity to consume those goods and services that are essential for maintaining employment status".25
ACOSS submitted that the minimum allowable wage level for full-time adult employees should be sufficient to ensure that a single adult living alone can attain a standard of living that would be generally regarded as "decent" by the Australian community, and can participate fully in the life of the community.26
The ACTU submitted that the right of all Australian workers to a "decent standard of living" was a fundamental norm in contemporary Australian society. It was argued that as a consequence award minimum rates of pay had to be "sufficient for a worker to participate in and belong to the community as an active citizen".27
In my view an adequate minimum wage should be sufficient to attain a level of material and social well-being considered minimally acceptable by the community generally.
In terms of the appropriate primary benchmark household type for wage fixation purposes trends in female labour market participation have reduced the relevance of the "family wage". I agree with the submission of the Brotherhood of St Laurence and ACOSS that single households without children are an appropriate benchmark household type. However minimum wages still have a role to play alongside income support payments in preventing poverty within families.
In terms of the approaches to setting benchmarks for minimum wage fixation a number of alternatives were advanced during the course of the proceedings, including:
The key benchmarks which have traditionally been used to assess income adequacy in Australia are the Henderson Poverty Lines (HPL).
Estimates can be made using the HPL to gauge the extent of waged poverty in Australia.
Table 2 below shows that at 100 per cent of the poverty line, there are almost 200,000 workers living in poverty.
* Too few records on which to base reliable estimates.
The Henderson Commission reached the conclusion that those below the poverty line were "very poor", those less than 20 per cent above it were "rather poor" and that both groups together were "poor".29
In these proceedings ACOSS described the circumstances of those at or below 110 per cent of the HPL as "austere and disadvantageous".30
Approximately 500,000 - or one in ten workers - are below 110 per cent of the HPL. The Brotherhood of St Laurence submitted that while the data in Table 2 on the number of workers in poverty are estimates they nevertheless give an indication that we have cause for concern.31
The HPL has been subjected to the criticism that it can obscure depth of hardship experienced by particular low income families and individuals, because it masks variations in the actual costs faced by real households.32
In their study on consensual poverty lines Saunders and Matheson note that the arguments for continuing to use the HPL are becoming weaker as time passes.33 In this context they cite the following statement by King:
". . . whilst users of the Henderson Poverty Line have acknowledged the limitations of the measure, the ultimate defence against the critics has always been the point that no-one has yet come up with anything better. With time, this element of the justification for use of the Henderson Poverty Line is becoming increasingly untenable and there now appears to be an urgent need to reformulate the approach to poverty measurement in Australia."34
The poverty lines were designed to measure the levels of income below which people were, in effect, excluded from effective participation in society.
By comparison, minimum award rates were arguably designed to achieve a living standard that is somewhat higher than this.
In my view it would not be appropriate to use the HPL as the primary benchmark for setting minimum wage rates, as the community expects full-time wages, together with income support payments where appropriate, to provide a standard of living significantly above "poverty" levels.
However I agree with the submission by ACOSS that as the proportion of wage earning families with children that is actually living in poverty has increased in recent years there is a role for the HPL or similar poverty benchmark in checking whether minimum wages, together with income support payments, are at least sufficient to prevent poverty in these households.35
A second set of possible benchmarks for income adequacy are the "cut out points" for income support payments for low income households as set out in Table 3 below.
Notes:
(a) Gross income equivalents of Henderson Poverty Lines.
(b) For higher rate of Family Payment.
* Family will be entitled to some Family Payment at this income level.
# Family will be entitled to some Newstart Allowance or Sole Parent Pension or Parenting Allowance at this income level.
ACOSS submitted37 that the key income support payments for low income households are:
Income support recipients may combine private earnings and income support payments. That is, the income level at which each payment "cuts out" (falls to zero) is significantly higher than the income level at which the recipient receives the maximum level of support. These cut out points arguably represent the level of gross income below which the Government acknowledges that households would be placed in unreasonable hardship, if not poverty.
However ACOSS submitted that care must be taken in using these cut out points as indicators of income adequacy, for two reasons:
(1) The income test for unemployment allowances are deliberately designed so that the cut out points fall significantly below low full-time wages (at a level of approximately $13,000 per annum), so as to provide an incentive for unemployed people to seek full-time employment. This undermines the usefulness of unemployment allowance cut out points as an indicator of an adequate living standard.
(2) While the pension and Family Payment low income cut out points (which were, in September 1996, approximately $21,000 for a single pensioner, $34,268 for a pensioner couple, and $30,596 for a low income family with two children under 13 years) are not artificially constrained in this way, they are nevertheless subject to the budgetary decisions of government, and so cannot be regarded as independent adequacy benchmarks.
While the cut off points for income support payments may be useful as defacto government-endorsed benchmarks of poverty, they are inappropriate as a basis for wage fixation, for the reasons set out above and for the same reasons that the HPL is not suitable for this purpose.
Surveys of community attitudes regarding the adequacy of different income levels to establish a consensual poverty line are another potentially useful data source. Saunders and Matheson used such a survey to test the validity of the HPL in 1989. They asked the question: "In your opinion, what would be the very lowest net weekly income (that is, income after tax but before payment of any bills) that your household would have to have to just make ends meet?"38
The essence of the consensual poverty line approach involves deriving a poverty line from individual responses to questions concerning the minimum income levels that people in different circumstances say they require in order to "make ends meet". By seeking community views on this issue, the consensual approach has the advantage that it can produce a poverty standard based on the actual perceptions of minimum levels of adequacy in the community.
The results in the Saunders and Matheson study were based on a national random sample selected from the electoral rolls. The survey had an overall response of 62 per cent and the authors expressed satisfaction with the extent to which the survey respondents were representative of the community as a whole.39
Saunders and Matheson constructed a set of alternative consensual poverty lines using the responses by people from different household types to this question, and compared these with the HPL. These consensual poverty lines were:
The results are comparable with earlier studies using similar methods41 which led the authors to conclude:
"That our consensual poverty estimates are consistent with these aspects of previous research on poverty in Australia suggests that the evidence discussed in this section is robust, of interest and relevance and should not be dismissed lightly."42
While the survey responses are subjective the results nevertheless provide a useful indicator of the public acceptability of different income benchmarks. The fact that the consensual poverty line is based on community perceptions and that the survey specifically addressed the question of the income level required `just to make ends meet' supports the level as an appropriate benchmark for identifying the low paid.
The consensual poverty line is expressed in net terms. For a single adult with no dependents a consensual poverty line of $21,710 net is broadly equivalent to a gross income of $27,500 or $530 per week. Hence persons employed at or below the rate prescribed for classification level C7 in the Metal Industry Award 1984 - Part I (ie $503.80 per week) are below the consensual poverty line.
The consensual poverty line developed by Saunders and Matheson is consistent with the decency threshold established by the Council of Europe. Employees receiving less than the decency threshold are considered to be low paid and not in receipt of fair remuneration.43 The threshold is set at 68 per cent of average weekly full-time earnings. Applying this threshold to the latest ABS figures for full-time adult earnings suggests a decency threshold of $496 per week or $25,792 per annum.44
The consensual poverty line is also consistent with the indicators of actual living standards obtained from survey and focus group research. These results are discussed in section 4.1.2.
I note that the conclusion reached in the Saunders and Matheson study may be regarded as preliminary and a more accurate result may follow after a larger sample has been surveyed to further reduce sampling error. However in my view it is the most useful current benchmark for income adequacy and a person earning below this level can be regarded as low paid. I do not agree with those parties who proposed that the low paid should be defined as employees in receipt of wages at the lower end of the classification structure, ie C11 or $409.50 per week ($21,296 per annum). No convincing rationale was advanced in support of such a definition.
It may be that in the future more appropriate measures of income adequacy will become available. In this regard ACOSS drew our attention to a Budget Standards project being conducted by the Social Policy Research Centre at the University of New South Wales. This study aims to devise two sets of detailed household budgets - one for low income households and a "modest but adequate" budget with which the former can be compared. These budgets will be based primarily on estimates by experts of the minimum costs of attaining certain basic standards of housing, diet, clothing etc. of different family types living in the Municipality of Hurstville in Sydney. ACOSS expressed the view that "this project will provide a rich source of data against which to test the adequacy of household living standards in Australia today".45
A further point to note in relation to a definition of the low paid is that the majority of low paid employees are women. In May 1996, 33 per cent of all female full-time non-managerial employees earned less than $500 per week compared to only 19 per cent of male employees in the same category.46 The graph below illustrates the point that low paid employees are more likely to be female:
Source: ABS Catalogue No. 6305.0.
Finally, it should be noted that low paid employees tend to be highly concentrated in a limited number of industry sectors. As Table 4 shows the wholesale/retail trade and the accommodation, cultural and personal services sectors had a significantly higher proportion of full-time employees earning less than $500 per week than the average for all industries.
Weekly total earnings
|
Manufactur-ing |
Wholesale trade and retail trade |
Transport and storage; communi-cation services |
Finance and insurance; property and business services |
Government administra-tion and defence |
Education; health and community services |
Accommod-ation; cultural and personal services |
Other |
Total in all industries | |
|
PERSONS (%) | ||||||||||
|
Under 300 |
0.9 |
0.2 |
0.3 |
0.7 |
0.5 |
0.9 |
1.4 |
0.6 |
0.7 | |
|
300 and under 340 |
0.8 |
1.6 |
0.2 |
0.8 |
1.3 |
1.2 |
1.9 |
0.6 |
1.0 | |
|
340 and under 380 |
3.7 |
3.1 |
0.6 |
1.6 |
0.6 |
1.4 |
4.5 |
0.7 |
2.2 | |
|
380 and under 420 |
6.8 |
12.7 |
1.9 |
5.1 |
3.1 |
4.9 |
7.2 |
1.6 |
5.9 | |
|
420 and under 460 |
9.2 |
16.1 |
5.2 |
9.1 |
8.1 |
7.5 |
10.2 |
3.2 |
9.0 | |
|
460 and under 500 |
9.0 |
12.9 |
7.4 |
12.3 |
11.0 |
7.5 |
9.4 |
5.0 |
9.5 | |
|
Total under 500 |
30.4 |
46.6 |
15.6 |
29.6 |
24.6 |
23.4 |
34.6 |
11.7 |
28.3 | |
The data in Table 4 is consistent with trends in other countries. The July 1996 OECD Employment Outlook notes that by industry, low paid employment is highly concentrated in wholesale/retail trade, hotels and restaurants in nearly all countries, including Australia.49
Material prepared by the Australian Centre for Industrial Relations Research and Teaching (ACIRRT) and tendered in these proceedings also sought to estimate the proportion of employees in receipt of low pay (defined as less than $9 per hour) by industry. The results of the ACIRRT material are summarised in Table 5 below:
|
Industry |
% Low wage employees |
|
Agriculture etc. |
48.0% |
Mining |
2.6% |
Food, Beverages & Tobacco |
15.4% |
Textiles |
20.5% |
Clothing & Footwear |
29.3% |
Wood, Wood Products & Furniture |
12.6% |
Paper Products, Printing & Publishing |
10.1% |
Chemical, Petroleum & Coal Products |
9.1% |
Non-Metallic Mineral Products |
8.7% |
Basic Metal Products |
5.6% |
Fabricated Metal Products |
8.4% |
Transport Equipment |
10.3% |
Other Machinery & Equipment |
9.0% |
Miscellaneous Manufacturing |
15.6% |
Electricity etc. |
2.1% |
Construction |
9.4% |
Wholesale Trade |
11.0% |
Retail Trade |
23.7% |
Transport & Storage |
8.6% |
Communication |
4.5% |
Finance etc. |
7.5% |
Public Admin & Defence |
7.9% |
Health, Education etc. |
8.6% |
Welfare & Religious Institutions |
27.5% |
Entertainment & Recreational Services |
14.6% |
Restaurants, Hotels & Clubs |
27.8% |
Personal Services |
34.1% |
Private Households Employing Staff |
81.0% |
|
Total |
12.4% |
Table 5 indicates a number of industries as having an above average incidence of low paid employees, for example:
However it needs to be borne in mind that a number of these industries do not employ significant numbers of people, eg private households employing staff. By contrast, some 1,723,700 persons are employed in wholesale/retail trade and 617,500 in the accommodation, cafes, restaurants, cultural and recreational services sector.51 As a consequence while a significant proportion of, for example, textile, clothing and footwear employees, are low paid they do not constitute a substantial proportion of all low paid employees due to the relatively small number of persons employed in that sector.52
On this basis it can be seen that Table 5 is broadly consistent with Table 4 and supports a conclusion that the bulk of low paid employment is concentrated in wholesale/retail trade and the hospitality sector.
DEFINING THE LOW PAID
Key Points
_ An adequate minimum wage should be sufficient to attain a level of material and social well-being considered minimally acceptable by the community generally.
_ Single households without children are the appropriate benchmark household type but minimum wages still have a role to play alongside income support payments in preventing poverty within families.
_ The Saunders and Matheson consensual poverty line is the most useful current benchmark for income adequacy and a person earning below this level may be regarded as low paid.
_ For a single adult with no dependents the current consensual poverty line of $21,710 net is broadly equivalent to a gross income of $27,500 or $530 per week. Hence, persons employed at or below the rate prescribed for classification level C7 in the Metal Industry Award 1984 - Part I (ie $503.80 per week) are below the consensual poverty line.
_ The majority of low paid employees are women.
_ Low paid employment is concentrated in wholesale/retail trade and the hospitality industry.
In order to assess the needs of the low paid, as the Commission is required to do by s.88B(2)(c), it is important to examine the circumstances of low paid employees.
A number of different approaches have been taken to provide an insight into the difficulties encountered by the low paid.
Two particular studies have examined aspects of the living standards of families with children and compared the circumstances of families on low incomes with other families.
The Life Changes Study53 by the Brotherhood of St Laurence is a longitudinal examination of the impact of low income and associated disadvantages on the life chances of 161 children born in inner Melbourne in 1990. In this study low income was defined as below 120 per cent of the relevant Henderson Poverty Line.
The Australian Institute of Family Studies (the Institute) have also examined this issue.54 The Institute studied Australian living standards and the findings are based on data from 1768 families in four Melbourne areas. The Institute's study defined low income as the bottom 20 per cent of the income distribution.
The study found that:
In summarising the findings of both studies McClelland56 argues that they demonstrate that in comparison with other families, families on low incomes were different in the following ways:
_ They were considerably less likely to have been able to meet costs of children's education, clothing, the family health care costs (such as children's medicines) or leisure activities - a quote from a mother in the Life Chances Study provides an illustration:
"We do not have money to buy toys, to let her take up piano lessons, to take her places. We have only enough money to pay for food. We will not have enough money to pay for her training and education."
The Institute's study found that 56 per cent of low income families had difficulties in meeting secondary school costs in comparison with 17 per cent of high income families; 47 per cent of low income families had difficulty with health costs (19 per cent for high income); and 69 per cent of low income mothers could not afford leisure activities in contrast with 30 per cent of high-income mothers.
_ Low income families were much more likely to have been in rental accommodation, to have little or no choice in selecting their housing, to have experienced housing problems and to be dissatisfied with their local area as a place to bring up children. One-third of the low income families in the Life Chances Study reported serious housing problems in the past year (compared with 10 per cent of other families). Housing problems included poor conditions and high cost of privately-rented housing, overcrowding and lack of safety in some public housing, and overcrowding and stress in shared housing.
_ They were much less likely to be satisfied with their child's educational progress, but more likely to experience anxiety about the potential effect of family finances on the child's future.
_ It was more common for the low income parents to feel worse-off in psychological terms and in terms of their personal well-being. Low income mothers in the Life Chances Study were much less likely to describe themselves as happy than mothers in higher income groups (40 per cent versus 84 per cent of other mothers).
_ They were significantly more likely to report serious financial problems and serious disagreement with their partners. Some 45 per cent of low income mothers reported serious disagreements with their partners (compared with 20 per cent of mothers not on low incomes). Over half of these low income mothers linked the conflict with stress related to financial problems and/or unemployment.
The Saunders and Matheson study, referred to in section 4.1.1 of this decision, also considered the material living standards of the survey respondents. In particular they examined the existence of situations in which respondents had, over the course of the year prior to the survey, difficulty "making ends meet" or had to go without basic goods and services. Table 6 below summarises the survey results in this regard:
|
Family type Not enough money over the last year to: | |||||||
Make ends meet |
Buy food |
Buy clothing |
Pay for health care |
Buy basic items for children |
Children have had to go without at least quite often | ||
|
Single adult |
|||||||
|
Non-aged |
39.7 |
14.3 |
30.2 |
17.5 |
na |
na | |
|
Aged |
22.9 |
2.9 |
17.1 |
5.7 |
na |
na | |
|
Couple, no children |
|||||||
|
Non-aged |
31.2 |
5.3 |
17.5 |
12.7 |
na |
na | |
|
Aged |
17.6 |
4.4 |
11.0 |
3.3 |
na |
na | |
|
Couple, 1 child |
32.3 |
7.6 |
17.7 |
8.9 |
5.0 |
2.9 | |
|
Couple, 2 children |
47.9 |
14.3 |
33.6 |
20.4 |
14.3 |
5.4 | |
|
Couple, 3 children |
49.6 |
10.9 |
34.3 |
24.8 |
21.6 |
6.7 | |
|
Couple, 4 children |
47.5 |
20.0 |
47.5 |
27.5 |
28.2 |
17.9 | |
|
Sole parent, 1 child |
65.0 |
15.0 |
45.0 |
20.0 |
31.3 |
18.8 | |
|
Sole parent, 2 children |
60.0 |
33.3 |
53.3 |
40.0 |
33.3 |
20.0 | |
|
Sole parent, 3 children |
62.5 |
25.0 |
75.0 |
37.5 |
75.0 |
62.5 | |
|
All families |
39.2 |
10.5 |
26.8 |
16.3 |
16.4 |
7.4 | |
Table 6 shows that almost 40 per cent of the sample indicated that they had been unable to "make ends meet" at some time during the previous year. This compares with 23.9 per cent of respondents whose actual income was less than the consensual poverty line at the time of the survey.58 This suggests that even those respondents whose actual income was greater than the consensual poverty line had to go without basic consumer items.
Table 6 also shows that, over the course of the previous year, around 10 per cent of the sample had experienced situations where they had not had enough money to buy food, 27 per cent could not pay for the clothing they needed and over 16 per cent could not pay for their medical bills or health care. Furthermore, 16 per cent of families with children had to deny their children basic items because of shortages of money at some time, while 7 per cent indicated that their children had to go without "quite often".
These results led Saunders and Matheson to state:
"These figures are all alarmingly high. One in ten of our sample claimed that they could not always afford to buy the food their family needed, while the high figure for health care is also cause for concern, given that Medicare is intended to provide adequate basic health care irrespective of the financial circumstances of the sick."59
The ACTU sought to examine the circumstances of low paid workers by providing quantitative data on the expenditure patterns of relevant households compared to their income, focusing on households where the prime source of income is wages, and providing qualitative data on the actual experiences of workers and their households in meeting their needs in contemporary Australian society.
Exhibit ACTU 7 entitled "What Does $400 Buy?" is particularly relevant in this context. It is apparent that an expenditure of $400 per week barely provides a basic standard of living.
A number of other studies have used focus groups to help gain insights into the difficulties that people on low incomes may experience.
In its focus group research Education Image60 found that participants with incomes below $25,000 had significant financial difficulties. In particular participants reported:
The participants reported feeling trapped, with their current income insufficient for them to break out of a debt and/or poverty cycle.
The ACTU submitted that this research dramatically depicts the reduced opportunity of low paid workers to participate as active citizens in society.61
The submission by the Brotherhood of St Laurence was also partly based on a series of focus group interviews with low paid workers. The results of their research supports the contention that some low wage workers are struggling to survive and many find themselves unable to afford even basic necessities. Examples of some of the difficulties encountered were:
The majority of the persons who took part in the focus group interviews had incomes between $20,000 and $25,000 per annum. The results of this study also support the conclusions reached in section 4.1.1 of this decision in which the low paid were defined as those receiving less than the consensual poverty line of $25,500.
Those workers interviewed who had children reported a strong sense of guilt that they could not afford to give their children the material goods or advantages that other parents could. The children's lives were therefore as constrained as those of their parents.66
In addition to the focus group research the ACTU and unions tendered witness statements from persons employed under the terms of the following awards:
The relevant employees were employed in the classifications of C11 process workers, shop assistants, room attendants, drycleaner and child care worker level 1. The gross wage received by the employees ranged from $290.00 per week to $470.10 per week.
The witness statements were admitted without cross-examination.
This material is broadly consistent with the studies and focus group research referred to above. For example the witnesses reported having difficulty in making ends meet and could not afford to pay for:
Low incomes can also lead to a substantial reduction in equality of opportunity for large numbers of people. There is strong evidence that both health status and educational attainment is influenced by socio-economic status, with children in low income families more likely to have lower educational outcomes72 and with people on lower incomes more likely to experience serious health problems.73 Given the importance of both health status and educational attainment in influencing a person's economic future, the impact of growing up in a low income family can be a substantial compounding of disadvantage in the longer term.
The Brotherhood of St Laurence submitted that the emotional and psychological impact of low wages goes to the heart of social democracy. It was argued that without freedom of choice and without adequate resources to participate in social activities, low paid workers were being denied the right to participate in society as active citizens. It was said that this was the point that the Henderson Commission made when formulating the poverty line which was based upon three key principles, of which the second principle was:
". . . every person should have equal opportunity for personal development and participation in the community. To achieve this, government intervention will be required not only to redistribute income but also to ensure a fair distribution of services and power to make decisions. Special consideration for disadvantaged groups, positive discrimination and devolution of power will be necessary."74
|
CIRCUMSTANCES OF LOW PAID EMPLOYEES Key Points _ Many employees earning less than the consensual poverty line are struggling to make ends meet and have to go without basic necessities such as food, clothing and health care. _ Level of income is positively related to the ability to purchase a home. Renters constitute the highest proportion of housing category in the low income quintile group. _ Low income can lead to a substantial reduction in equality of opportunity for large numbers of people. Health status and educational attainment is influenced by socio-economic status. Children in low income families are more likely to have lower educational outcomes and people on low incomes are more likely to experience serious health problems. |
The Joint Governments submitted that any proposal to adjust the award safety net should be considered in the context of the broader social safety net. The social safety net was said to encompass the system of cash transfer payments, relevant aspects of taxation arrangements and the provision of indirect benefits such as Medicare, the health care system and the education system.75
The Joint Governments argued that award wages cannot be the sole mechanisms for addressing the needs of the low paid. It was said that significant components of needs and living standards are best addressed by the social security and taxation systems which can more effectively target these diverse circumstances.76
I agree with the above propositions. The task of wage fixation cannot properly take place in a vacuum without any consideration being given to the impact of the broader social safety net.
There is a clear inter-relationship between the award safety net and the broader social safety net. This relationship manifests itself in a number of ways:
There is broad agreement among researchers that income support, the social wage and taxation policies in most OECD countries have a substantial equalising effect on the distribution of income. However an international comparison by Saunders suggests that:
". . . there is a positive and statistically significant association between the degree of inequality in primary and disposable incomes. International evidence thus supports the proposition that the final degree of inequality of disposable income follows closely the degree of inequality which emerges in the labour market."78
The importance of wages as a determinant of living standards and relative equality supports what ACOSS refers to as an integrated approach to the relationship between wage fixation and the social safety net.79
Under the integrated approach:
According to this approach, wage regulation would be based on more explicit objectives and targets, which are designed:
In my view the integrated approach proposed by ACOSS is an appropriate way of conceptualising the relationship between the award safety net and the broader social safety net. Indeed the adoption of such an approach is one of the reasons why I chose single households without children as the appropriate benchmark household type for wage fixation purposes.
As previously stated one consequence of the relationship between these two concepts is that adjustments in the social safety net may have a bearing on the determination of the level of the award safety net. In this regard the effect of the recent Federal Budget on the social safety net is relevant to the determination of the claims before the Commission.
In its submission in reply the ACTU tendered a report prepared by D. Johnson and O. Hellwig entitled "Evaluation of the Distributional Impact of the 1996-97 Budget on Australian Households".80
This report models the impact on Australian households of measures announced in the 1996-97 Federal Government budget. It provides estimates of the impact on the purchasing power of a range of different household types and income levels of changes to government benefits, taxation and the financing of community services which were announced in last year's budget.
The main conclusions of Johnson and Hellwig are:
Table 7 below reports the main results of the study.
Average income
|
Effect of budget
|
Change as per cent of income | ||
|
Household type |
||||
Single persons |
438.4 |
-4.4 |
-1 | |
Sole parents |
756.0 |
-6.0 |
-0.79 | |
Couples with no dependents |
910.5 |
-10.5 |
-1.15 | |
Couples with dependents |
1137.3 |
-0.5 |
-0.04 | |
All households |
869.5 |
-6.9 |
-0.79 | |
Household disposable income range(b) | ||||
0-200 |
240.2 |
-5.4 |
-2.25 | |
201-300 |
431.2 |
-9.7 |
-2.25 | |
301-400 |
527.1 |
-13 |
-2.47 | |
401-500 |
598.3 |
-6.8 |
-1.14 | |
501-600 |
699.2 |
-2.9 |
-0.41 | |
601-700 |
803.8 |
-0.1 |
-0.01 | |
701-800 |
903.3 |
-1.4 |
-0.15 | |
801-1000 |
1053.6 |
-2.4 |
-0.23 | |
1001-1200 |
1241.1 |
-8.3 |
-0.67 | |
1200+ |
1773.3 |
-15.1 |
-0.85 | |
Households by main source of income | ||||
Wage and salary earners |
1025.8 |
-4.3 |
-0.42 | |
Jobsearch/Newstart/Sickness |
508.7 |
-37.9 |
-7.45 | |
Sole parent/Widow |
600.3 |
-9.5 |
-1.58 | |
Austudy |
634.6 |
-15.1 |
-2.38 | |
Disability/wife |
525.9 |
-21.5 |
-4.09 | |
Age/Wife/Veterans |
452.3 |
-5.0 |
-1.11 | |
Notes:
(a) Note that social wage income here refers to the total of cash income from all sources including government transfer, less personal income tax plus the imputed value of non-cash benefits provided by government such as education and health services.
(b) The corresponding gross income levels will be higher than this, as disposable income takes account of personal income tax.
The above information relates to all households. The report also examined the impact of the budget just for households in which wages and salaries are the main source of income.
The results for wage and salary earners are mixed but overall the net result is likely to be a loss of social wage income, on average $2.40 per week. Table 8 below shows that those at the lower and upper end of the income ranges lose and those in the middle tend to gain from the budget changes. The results for wage and salary earner households reflect those for all households but with losses somewhat smaller.
Household classification |
Base average income
|
Shocked average income
|
Effect of selected budget changes
|
Change as
| |
|
Demographic type |
|||||
Single persons |
607.0 |
604.2 |
-2.8 |
-0.46 | |
Sole parents |
849.1 |
848.1 |
-1.0 |
-0.12 | |
Couples no deps |
1043.6 |
1033.9 |
-9.7 |
-0.93 | |
Couples with deps |
1136.9 |
1142.0 |
5.1 |
0.45 | |
Multi-inc unit family |
1184.7 |
1164.2 |
-20.5 |
-1.73 | |
Shared inc unit h'hold |
1206.5 |
1194.8 |
-11.7 |
-0.97 | |
All households |
1013.7 |
1011.3 |
-2.4 |
0.24 | |
Range of household disposable income ranges | |||||
0-200 |
131.8 |
129.6 |
-2.2 |
-1.67 | |
201-300 |
377.2 |
372.2 |
-5.0 |
-1.33 | |
301-400 |
486.1 |
481.5 |
-4.6 |
-0.95 | |
401-500 |
563.2 |
563.0 |
-0.2 |
-0.04 | |
501-600 |
682.1 |
684.0 |
1.9 |
0.28 | |
601-700 |
791.8 |
799.2 |
7.4 |
0.93 | |
701-800 |
890.3 |
894.4 |
4.1 |
0.46 | |
801-1000 |
1050.0 |
1050.0 |
0.0 |
0.0 | |
1001-1200 |
1227.8 |
1219.0 |
-8.8 |
-0.72 | |
1200+ |
1714.5 |
1701.8 |
-12.7 |
-0.74 | |
Mr Cole, on behalf of the Joint Governments, addressed the Johnson and Hellwig report in his oral submissions in reply.83 In the course of that submission he did not identify any methodological problems with the report but rather argued that while it shows that there are some losses to wage earners as a result of budget measures the Commission should weigh that against the benefit the whole community may sustain as a result of a lower deficit. The critical issue was said to be that the report had no regard to the wider benefits which will flow from the Government's budget strategy.
I agree with the general proposition that, at least in theory, a lower deficit should result in a reduced demand on national savings and hence allow greater scope for expenditure on investment - which in turn may generate economic and employment growth.
However there are two problems with the objections raised:
I also note that the Commonwealth identified some of the items modelled in the study which had been rejected by the Senate. In my view this is unlikely to materially affect the results for two reasons.
First, the study concentrated on budget measures which can be identified as having an immediate and direct effect on households. On the basis that many other savings measures will be at least partly passed on to households in the form of higher costs or reduced services the authors conclude that the eventual effect on households of the package of changes as a whole is likely to be greater than the report suggests. Consequently the study is likely to understate the overall average loss of household purchasing power.84
Second, in relation to two of the more significant budget measures rejected by the Senate the Government has indicated that it has not accepted the rejection. In the case of the migrant two year waiting period for social security payments, the Treasurer has publicly stated that the Government will be reintroducing the legislation in the current sitting of Parliament. In the case of the Medical Expenses Rebate, the Government has indicated that this measure will be reintroduced into Parliament with the same date of effect.85
The effect of the recent Federal Budget on the social wage income of wage and salary earners as identified in the Johnson and Hellwig study is relevant to the determination of the claims before the Commission.
|
SOCIAL SAFETY NET Key Points _ There is an interrelationship between the award safety net and the broader social security safety net. _ While the award safety net is not the sole means of addressing the needs of the low paid it is the primary instrument to prevent a further decline in the living standards of low wage earning households. Wage regulation is supplemented by the income support and taxation systems, especially for couples and families with children. _ The objective of the award safety net should be to primarily provide a decent standard of living, significantly above poverty levels, for a single adult with no children. At the same time, along with the social security safety net, the award system should ensure that low wage earning families with children are at least lifted out of poverty. _ Adjustments in the social safety net have a bearing on the determination of the level of the award safety net. _ The Johnson and Hellwig study on the effect of the recent Federal Budget on the social wage income of wage and salary earners is relevant to the determination of the claims before the Commission. In particular the study found that:
|
Section 88B(2)(a) of the new Act provides that the Commission must ensure that a safety net of fair minimum wages and conditions of employment is established and maintained, having regard to, among other things:
"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community."
In order to give effect to this statutory requirement it is necessary to consider what is meant by the expression "living standards generally prevailing in the Australian community".
The most detailed submission on this issue was made by the Joint Governments.86 In summary the Joint Governments advanced the following points:
In relation to the relevance of market determined wage rates to the Commission's obligations under s.88B(2)(a) the Joint Governments submitted:
"While the Commission only has the jurisdiction to influence the wages component of living standards it must give consideration to the large range of economic elements influencing living standards. It is also not appropriate to measure living standards by direct reference to `the market' or to bargaining outcomes (as is implicit in the ACTU's claim). Living standards is a much broader concept, and in any case, in a system which is centred on agreement making at the enterprise or workplace level, market rates should not be regarded as a relevant consideration in adjusting the award safety net. Otherwise, there is potential of an undesirable interaction between awards and agreements which could lead to inflationary wage pressures . . . paragraph 88B(2)(a) requires the Commission to set fair minimum standards in the context of the living standards which generally apply. It does not ask the Commission to set minimum standards that match living standards; generally prevailing living standards is one of the criteria to be taken into account. It is also important, in the scheme of the legislation, that the minimum standards fixed by the Commission should not operate to provide similar outcomes to those under agreements between employers and employees, which would be a disincentive to the making of such agreements."87
The ACTU submitted that the principles upon which its claim was based were that the minimum award rates sought by the claim:
ACOSS submitted that wage levels for low paid workers should not be permitted to fall consistently behind community standards and award rates of pay should be relevant to actual wage rates for the same or similar work in the market place.89 In particular Mr Fitzgerald, on behalf of ACOSS, submitted:
"In the short term, minimum award rates should be adjusted over the next 12 months to at least reflect increases in average weekly ordinary time earnings. But in the medium term, we suggest a process through which the Commission would establish an appropriate benchmark for assessing the adequacy of minimum award rates."90
While I generally agree with the points advanced by the Joint Governments on this issue I do not accept their submission that market rates should not be regarded as a relevant consideration.
There is a clear relationship between wages and living standards. Studies of community living standards in Australia which have compared "quality of life" indicators with income levels have generally found a definite correlation between higher income levels and improved welfare according to such indicators as health, status, happiness and financial security.91
As Novak has said:
"If we are to arrive at a better conception of what constitutes and creates a minimum acceptable standard of living . . . we need to do so with reference to the way in which living standards are created and defined. In other words, we need to do so with reference to wages."92
Saunders has also argued that:
". . . access to an adequate money income remains the most important single determinant of living standards for most Australians."93
Given the impact of wages on living standards it would, in my view, be illogical to ignore movements in market wage rates when giving consideration to living standards generally prevailing in the Australian community.
In the context of the statutory requirement in s.88B(2)(a) two particular trends are relevant:
_ the gap between income levels established as a result of enterprise bargaining and those determined by the award system is widening; and
_ income inequality in Australia is increasing.
There has been a growing discrepancy between the level of growth in AWOTE and increases in award rates of pay in the 1990s. Between 1991-92 and 1995-96, AWOTE grew by 14.1 per cent, compared with growth in award rates of 5.4 per cent. Over the same period, the implicit price deflator for private consumption grew by 8.7 per cent.94 In real terms AWOTE rose by 5.4 per cent, whereas award rates fell by 3.3 per cent over the period 1991-92 to 1995-96.
Chart 2 below shows how award rates of pay moved in comparison to AWOTE. The chart shows percentage increases on the previous year. The movements are similar throughout 1982-1989. However, from 1992 a gap forms between the rate of increase in AWOTE and the rate of increase in award rates. AWOTE reflects increases from enterprise bargaining and overawards, while award rates primarily reflect the three safety net adjustments by the Commission, provided for in October 1993, September 1994, and October 1995 and remaining minimum rates adjustments that have occurred.
The chart clearly shows the beginning of a dispersion between minimum rates of pay and average earnings since the introduction of enterprise bargaining.
Source: Reserve Bank of Australia Bulletin December 1996
Table 9 and Chart 3 show movement in executive salaries compared with the CPI, award rates and AWOTE. Executive salaries in Table 9 represent the base salary paid to executives which excludes bonuses, commissions, loadings and benefits and therefore tends to underestimate the movement in executive salaries.
|
CPI |
Award |
AWOTE |
Exec. Salaries | |
% |
% |
% |
% | |
|
1984 |
3.8 |
9.2 |
10.5 |
6.8 |
1985 |
6.7 |
2.7 |
4.8 |
8.3 |
1986 |
8.5 |
4.0 |
6.8 |
8.8 |
1987 |
9.3 |
5.7 |
6.7 |
10.0 |
1988 |
7.1 |
4.5 |
6.4 |
8.3 |
1989 |
7.6 |
7.0 |
7.8 |
8.5 |
1990 |
7.8 |
6.3 |
6.7 |
8.1 |
1991 |
3.3 |
2.6 |
5.1 |
6.3 |
1992 |
1.2 |
3.4 |
4.7 |
4.5 |
1993 |
1.9 |
0.8 |
1.8 |
3.0 |
1994 |
1.7 |
1.3 |
3.3 |
3.9 |
1995 |
4.5 |
1.6 |
4.8 |
4.5 |
1996 |
3.1 |
1.1 |
3.9 |
5.0 |
It is apparent from Chart 3 that movements in award rates of pay have been generally below CPI, AWOTE and executive salaries.
Inequality in income distribution, in terms of wages dispersion, does not of itself necessarily mean that there has been a rise in poverty among those situated at the lower end of the dispersion scale. Increased wage dispersion can occur alongside rising wages for all workers, with those at the top simply rising faster than those at the bottom. However, in the Australian context not only did the real earnings of those at the bottom decline but the real earnings of those at the top rose over the same period thereby contributing to greater wage dispersion.
A study based on most recent Household Expenditure Survey by the Social Policy Research Centre at the University of New South Wales found that low income working households have experienced the largest fall in relative income.96
The results of a study by Saunders on the same issue are summarised in the table below:97
The above table clearly shows that those in the second, third and fourth income deciles experienced the largest fall in income share between 1981-82 and 1989-90. By contrast the income share of the top two deciles increased over the same period.
In 1995 the OECD noted that the widening disparity in earnings has been accompanied by falling real wages at the bottom of the wage distribution in several OECD countries - including Australia - and that a new class of "working poor" has emerged:
"Widening earnings differentials can imply substantial hardship for a growing pool of workers with low wages. This would appear to be the case in the United States where real earnings for the lowest decile of earners fell by more than 10 per cent over the 1980s . . .
A widening of earnings differentials also implied a fall over the decade in real wages for low-wage earners in Australia and Canada . . .
The fall in real earnings at the lower end of the earnings distribution in the United States (with declines occurring even for men with median earnings) has prompted concern that its better performance than Europe in avoiding a sustained increase in unemployment has been at the expense of a growing number of `working poor'."98
The income support system in Australia has significantly moderated the trend towards inequality in market incomes over the past 20 years. However, the majority of major studies into changes in Australian income distribution over the 1980s suggest that neither the taxation, income support or "social wage" systems have managed to reverse the trend towards inequality in market incomes.99 Further a number of commentators have noted that reliance on the social security safety net to substantially reduce income inequality is unlikely to be a viable option in the future.100 As Nevile states:
"In the 1980s and early 1990s, when the social security system and the social wage did much to offset increased inequality in market incomes, a significant part of the financing came from the sale of government assets and from budget deficits. Neither of these two sources of finance is a viable long term option."101
A recent study of poverty in Queensland found that over the last few years a much broader range of people have presented to welfare agencies needing financial assistance. The organisations interviewed for the project commented that the "extent of the need" seemed much higher than in the past, and expressed concern at the "level of desperation" of many of their clients.102
The Smith Family reported that in 1990 it had 100,000 clients approaching their doors for help and 90 per cent were able to be assisted in some way. In 1995 the Smith Family had 400,000 contacting them and only 35 per cent could be helped.103
In summary, there is a considerable body of evidence in support of the proposition that income inequality in Australia has increased over the past decade.104
During the course of these proceedings ACOSS submitted that income inequality had sharply increased over the past 20 years and that there is a risk that Australia will become a deeply divided society within the space of a decade if wage fixing and social welfare institutions do not adapt to this challenge.105
It was argued that unless action is taken now to substantially strengthen and renew either the system of minimum wage regulation or the systems of income and tax support, or both, then more low wage-earning households will fall behind and social divisions will become entrenched.106
McClelland argues that the social costs of increased inequality can include a loss of social cohesion and an increased incidence of social problems.107 The available empirical evidence tends to support this proposition.
Growing inequality has also been found to contribute to an increased incidence of suicide108 and crime.109
Freeman110 has argued that in the United States a rise in the economic rewards from crime relative to those from legal work helps explain the high and rising rate of criminal participation among American men.
Lee111 found a substantive positive correlation between levels of earnings inequality and crime rates. His estimates suggest that the increased inequality in the 1980s induced a 10 per cent increase in crime, as measured by the FBI's Uniform Crime Report Index.
A number of studies have shown a strong connection between inequality and poor health. The author of one international study concluded:
"National average death rates are so strongly influenced by the size of the gap between rich and poor in each society that differences in income distribution seem to be the most important explanation of why average life expectancy differs from one developed country to another."112
It is apparent that increasing inequality has serious, adverse social ramifications.
|
LIVING STANDARDS GENERALLY Key Points _ The expression "living standards generally prevailing in the Australian community" in s.88B(2)(a) reflects a broad concept and refers to standards which generally apply. It requires the Commission to have a sense of the current living standards enjoyed in the community rather than making an exact determination of prevailing living standards._ As wages are an important determinant of living standards, movements in market rates are a relevant consideration in the context of the Commission's obligations under s.88B(2)(a)._ The Commission is not required to match or reflect prevailing community living standards in the award minima. _ The gap between income levels established as a result of enterprise bargaining and those determined by the award system is widening. _ Income inequality in Australia is increasing and if this trend continues it will have serious, adverse social ramifications. |
The claim by the ACTU and unions and the various alternatives advanced in the proceedings are set out in the majority decision and I do not need to describe them in detail here. In summary the claims and alternatives are:
_ ACTU and unions: two elements to the claim:
_ NSW Government: if the Commission was satisfied that the full year cost of stage 1 of the ACTU's claim was in the range 1.3 to 1.9 per cent then the NSW Government would support the granting of stage 1 of the claim.
_ ACCI:114 No increase should be awarded but three alternatives were advanced:
- full absorption;
- substantial productivity and efficiency tests; and
- being targeted closely on employees at the lower end of the classification scale who have not received any increases since November 1991. [Note: this was not ACCI's preferred option as it would still have an "extremely serious" effect on industry sectors without overaward payments or enterprise agreements.]
_ Joint Employers:115 No increase preferred but in the event that the Commission decided an adjustment to safety net rates of pay is warranted then it was proposed that a flat adjustment of $8 per week be applied to all award rates of pay subject to the following tests:
There should be a prima facie entitlement, subject to review by the Commission, to two additional adjustments of $8 at 12 monthly intervals.
_ BCA: The Commission should set a single minimum adult wage rate which would apply regardless of the award and be expressed as an hourly rate. This minimum wage should be based on the current lowest wage rate in most federal awards.117
_ NFF: Opposed any increase.
_ VACC and TACC: Opposed any increase.
_ MTA of NSW and MTA of SA: Opposed any increase but stated that if the Commission considered some increase was warranted then the amount awarded should be conservative and not more than $8 per week.
_ ACOSS: Supported a safety net adjustment "significantly in excess of the $8 recommended by the Commonwealth Government".118 Declined to nominate a specific figure but supported an increase which would benefit the majority of workers below the median wage level of $28,000 per annum by at least the movement in AWOTE.119 As at November 1996 the annual movement in AWOTE for full-time adults was 3.9 per cent.120
_ Brotherhood of St Laurence: Supported a safety net increase. Did not commit to a quantum but stated:
". . . we would point out to the Commission that we believe that any safety net increase should increase these workers' position in real terms. It must be greater than just to maintain their real position because these workers are saying to us that they are experiencing hardships and poor quality of life and we do not believe that we should allow that to continue and it would appear to us that that would need an increase of much greater than $8 per week."121
_ HREOC: Supported what it described as the principles inherent in the ACTU's claim, including:
Made no submissions on the specific amounts sought.
_ AYPAC: The award system should provide employees, regardless of age, with a minimum living income sufficient to provide for a fair, decent and reasonable standard of living.
_ AP&SF: No one in Australia should have to live below the poverty line and income levels should be sufficient for people to live in dignity.
I would have awarded a safety net adjustment of:
_ $15 per week for persons employed at or below classification level C7 (ie $503.80 per week) in the Metal Industry Award 1984 - Part I or its equivalent; and
_ 2.5 per cent for persons employed above classification level C7.
The above safety net adjustment would have been provided in two instalments six months apart, subject to a number of tests including the provision of union commitments as to full absorption into above award payments and the establishment of a program of discussions to deal with the award review process.
The detail associated with the adjustment I would have awarded is set out in section 5.9.
The establishment and maintenance of a safety net of fair minimum wages and conditions of employment requires a range of factors to be considered and balanced.
In this regard I should note that I do not agree with the statement in the majority decision that the previous $8 safety net increases constitute a "convenient starting point for a consideration of the appropriate increase on this occasion".123
The appropriate balance in a particular case depends on the industrial, economic and social circumstances at that time.
There are a number of significant differences between the circumstances in which the claims before us are to be determined and the context in which previous safety net adjustments have been determined. In particular:
(1) In the context of maintaining a safety net of fair minimum wages and conditions of employment the Act now requires the Commission to have regard to:
(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community; and
(b) when adjusting the safety net, the needs of the low paid.124
There was no such statutory direction in the former Act.
(2) The new Act provides that one of the means to give effect to its principal object is by "enabling employers and employees to choose the most appropriate form of agreement for their particular circumstances whether or not that form is provided for by this Act."125
The amended objects reflected in the new Act are clearly significant as they were one of the reasons why the Commission decided to alter its approach to absorption in this case.126
In the September 1994 Review decision and the October 1995 Review decision the Commission said that the safety net adjustments it awarded were intended to ensure that "all employees covered by federal awards receive a wage increase of at least $24 per week over the period of more than four and a half years from 1 November 1991 to 30 June 1996".127 Accordingly the Commission decided that the second and third $8 adjustments could be offset to the extent of any wage increases payable since 1 November 1991 pursuant to formal agreements approved or certified by the Commission.
The decision to limit the offsetting clauses associated with the second and third safety net adjustments to formal "closed" agreements was predicated on the then objects of the Act which imposed a statutory obligation on the Commission to encourage and facilitate the making of agreements of the type specifically provided for in the Act, ie certified agreements and enterprise flexibility agreements.
In the October 1995 Review decision the Commission rejected a submission that any safety net adjustment should be fully absorbable into overaward payments.128
In this decision the Commission has determined that the safety net adjustment awarded may be absorbed against any above award payment. The change in the scope for absorption from that provided in previous decisions has the effect of reducing the number of employees affected by this decision compared to the number affected by previous safety net reviews. As a result the increase in AWOTE as a consequence of the adjustment is lower than would be the case if the scope for absorption was more limited.
(3) The number of employees dependent on the award safety net for wage increases has changed significantly since the September 1994 Review decision. As at the end of 1994 only 1.26 million employees were covered by federal agreements.129 By the end of September 1996 federal agreements which were current or had expired but not been replaced covered an estimated 1.74 million employees130 - a 38 per cent increase. The increase in the number of employees covered by agreements supports a conclusion that there has been a decline in the number of employees dependent on the award safety net for wage increases. At present only about one third of employees in the federal system are dependent on award wage rates. In 1994 the proportion was about one-half and in 1993 about two-thirds.131
The decline in the number of employees affected by any increase in the award safety net means that the cost and economic impact of a given level of safety net adjustment is less now than it was in 1993.
In the circumstances of this case the adjustment I would have awarded reflects, in my view, an appropriate balance between conflicting considerations. In particular the adjustment which I would have awarded meets the following objectives:
_ the cost and economic impact is not significant;
_ the maintenance of an incentive to bargain;
_ assisting to meet the needs of the low paid in the context of living standards generally prevailing in the Australian community;
_ the facilitation of the award simplification process;
_ the maintenance of the existing award based skill relativities and the needs of the low paid; and
_ addressing the gender earnings gap.
Each of these considerations is addressed in more detail below.
The Joint Governments provided the only cost estimate of a $15 per week arbitrated safety net adjustment. In my view the cost of the adjustment I would have awarded is not significantly greater than the cost of a $15 adjustment throughout the award structure. Whilst I would have awarded a 2.5 per cent increase for those employed in classifications above the C7 level this is unlikely to significantly alter the cost impact because:
The Joint Governments costed the direct effect of various safety net scenarios based on data from the 1995 Australian Workplace Industrial Relations Survey regarding the payment of a previous $8 safety net adjustment in the 12 months to late 1995. The Joint Governments assumed that a broadly similar pattern of accessing award based increases will apply in 1997 as it did in 1995. The estimates derived using this method are set out in the table below:132
In my view the overall economic impact of the cost of the arbitrated safety net adjustment I would have awarded would be minimal. I have reached this conclusion for the reasons which are set out below.
The Joint Governments estimate that a $15 per week safety net adjustment with full absorption will increase AWOTE by 0.6 per cent. In my view this overstates the likely direct wage impact of such an increase.
As noted above the methodology adopted by the Joint Governments for estimating the direct cost effect of various safety net scenarios assumes that a broadly similar pattern of accessing award based increases is likely to apply in 1997 as it did in 1995. That is, persons who received the earlier $8 adjustment and who were not in receipt of overaward payments will receive the $15/2.5 per cent adjustment I have proposed.
Implicit in such an approach is an assumption that the number of employees dependent on award increases has not changed since late 1995. In my view such an assumption is flawed.
The Joint Governments submitted that the Formalised Federal Workplace Agreements Database (WAD), which has been maintained by the Department of Industrial Relations since the introduction of formalised enterprise bargaining in October 1991, shows that there has been a steady increase in the rate at which agreements have been formalised by the Commission. A total of 3989 federal agreements were formalised in 1995-96 compared with 2563 in 1994-95 - an increase of 56 per cent. An additional 1061 agreements were formalised and entered on the WAD in the September quarter 1996.133
Further, as at the end of September 1996, federal agreements which were current or had expired but not been replaced covered an estimated 1.74 million employees. This compares with an estimated 1.56 million employees covered by federal agreements in June 1995.134 At the end of 1994 only 1.26 million employees were covered by federal agreements.135
The steady increase in the number of agreements and employees covered by them supports a conclusion that there has been a decline in the number of employees who depend on the award safety net for the determination of their wages and conditions of employment. It seems likely that this trend will continue. Indeed one of the objects of the new legislative framework is to provide the means:
". . . for wages and conditions of employment to be determined as far as possible by the agreement of employers and employees at the workplace or enterprise level, upon a foundation of minimum standards . . ."136
The Joint Governments' own submission recognises that the number of employees reliant on the award system will decline over time:
"With the Governments legislative reforms in place, over time fewer employees will rely on the safety net of award minimum wages and conditions . . . Employers and employees in future will have a greatly expanded choice of agreement mechanisms and, under the impetus of the reforms, most will look to setting actual pay and conditions through their agreements".137
Further, the 1996-97 Budget Papers138 state:
"Proposed Industrial Relations Reforms in Australia
. . . The central objective of the proposed reforms is to give employers and employees primary responsibility for industrial relations and wage setting arrangements at their own enterprise and workplace. The increased focus on bargaining at the enterprise level encourages wage outcomes that more accurately reflect the interests of those directly involved: as reflected in the interaction between the individual firm's demand for labour based on its own profitability and market conditions and the potential supply of labour with the required skills. Three main aspects of the proposed reforms support bargaining at the enterprise level.
First, changes to the requirements for Certified Agreements and the introduction of Australian Workplace Agreements would provide greater choice in the way agreements are negotiated, including whether they are collectively or individually based. Removing the scope for uninvited intervention in the negotiating process from third parties should enable employees and employers to develop agreements which best reflect the collective needs of their own enterprise. Greater choice in the type of agreement should also assist the wider spread of formalised enterprise agreements in the non-union sector.
Secondly, the reforms aim to prevent the excessive use of bargaining power by employers and employees. The proposals include reducing the prescribed role of unions in the bargaining process (see Box 2) and introducing more effective limits on industrial action. It is also proposed to remove the arrangements that shelter unions from competition - for example, `closed shop' and union employment preference arrangements and the `conveniently belong' provisions which favour existing unions and discourage enterprise-based unions. In addition, it is proposed that secondary boycott provisions be restored to the Trade Practices Act 1974. Employees are also to have protection against coercion and discrimination by employers and there is to be recourse to the Australian Industrial Relations Commission or the Employment Advocate. Protection will also be provided by the maintenance of an award safety net. In addition, there is to be a range of legislated minimum conditions for enterprise agreements. These include minimum leave entitlements and a requirement that take-home pay should be no less than that under the relevant award. Unfair dismissal protections will be maintained but will be made simpler.
Thirdly, the proposed further simplification of the award system to a number of core areas (see Box 3) should help to reduce prescription in the workplace practices. This will be assisted by the proposed insertion of provisions which will allow for the more flexible application of award provisions by agreement at individual workplaces. These changes should help to give added primacy to negotiation at the enterprise level. As a result, employers and employees should, over time, more easily develop work practices which best suit their needs."
Given the increase in the number of agreements, and employees covered by them, since 1995 and the likelihood that this trend will continue, the number of employees who would receive the benefit of an arbitrated safety net adjustment as a result of these proceedings is likely to be less than those who received an increase from previous safety net adjustments. Consequently, the premise upon which the Joint Governments cost estimate is based - namely that the pattern of accessing award based increases which operated in 1995 will apply in 1997 - is incorrect.
As the number of employees who would have received the benefit of a $15/2.5 per cent adjustment is likely to be less than the number estimated by the Joint Governments, it also follows that the direct cost impact will be less than the 0.6 per cent suggested.
The Joint Governments submitted that the indirect effects of granting safety net adjustments include:
The essence of the submissions put by the Joint Governments and others was that if the ACTU's claim was granted it would place a floor under enterprise bargaining negotiations and lead to higher aggregate wage outcomes which would in turn lead to higher inflation and to further demands for wage increases. Such an outcome, it was argued, would result in the Reserve Bank tightening monetary policy by increasing interest rates which would lead to reduced economic and employment growth.140
It was also argued that while the indirect impact of a moderately sized safety net increase, such as $8, would be likely to be relatively small, it would increase significantly at higher levels such as $12 or $15 per week.141 No empirical basis for such a distinction was advanced in the proceedings before us.
I acknowledge that if the 8.75 per cent minimum rates increase and $20 safety net adjustment advanced by the ACTU was granted then the indirect effect could be substantial and may have the economic impact suggested by the Joint Governments. However, in my view the modest adjustment which I would award is unlikely to have a significant indirect cost impact for the reasons set out below:
(1) Absorption: the increase I would have awarded is subject to full absorption against all above award payments. Further, at the time an award was varied to insert the $15/2.5 per cent adjustment each union party to the award would have been required to give a specific commitment as to the absorption of the increase provided. In particular the union commitments would have involved an acceptance that the adjustment may be absorbed into above award payments and a commitment that the union would not oppose such absorption.
Since the late 1980s the Commission has relied upon absorption and commitments from union parties to awards to minimise the cost impact of award increases designed to assist the low paid, for example:
A number of parties submitted that "past experience of employers has been that complete absorption of a central wage increase into existing overaward or agreement rates is extremely difficult to achieve".145 However very little material was provided in support of such assertions.
In response to a Commission request for information in support of its contention that employers had encountered difficulties in seeking to absorb past increases the BCA was only able to provide the following specific examples:
"_ Oil industry dispute with NUW and another union over the absorption of Safety Net Adjustments into various enterprise agreements. This matter was eventually resolved by a decision in favour of absorption, by a Full Bench of the Commission that included several members of the present Full Bench.
From the limited detail provided it would appear that in each of the particular examples cited by the BCA the relevant employer was in fact ultimately successful in being able to absorb the award increases in question. As such it does not constitute evidence in support of the assertions made regarding the problems with absorption.
There is nothing in the material before the Commission which would warrant a conclusion that absorption has not been successful over recent years in reducing the economic impact of decisions intended to benefit the low paid. Given the successful use of absorption over the past decade there is no basis for presuming that it will be less successful in relation to the modest level of adjustment which I would have awarded.
The utility of absorption as a means of reducing the economic impact of the Commission's decision is also supported by the Joint Employers submission. The Joint Employers submitted:
"Absorption is an essential pre-condition. In the absence of absorption we would be strongly against any adjustment at this time."147
Implicit in this submission is a recognition that absorption is an effective means of reducing the cost impact of a safety net adjustment. If absorption was ineffective it would be difficult to understand why the Joint Employers regard it as an "essential pre-condition" to any safety net adjustment.
(2) Recruitment and Retention: There is no basis, on the material before the Commission, to presume that the adjustments I would have awarded will impact significantly on actual wages paid for retention or recruitment purposes. The predominance of enterprise bargaining outcomes is such that recruitment and retention rates will reflect actual wage rates achieved through bargaining, whether formal or informal, rather than award rates which constitute a minimum safety net standard.
(3) Bargaining Impact: I do not accept the proposition that moderate increases in award rates will impact on enterprise bargaining outcomes. In my experience in facilitating enterprise bargaining, debate between the parties is generally directed to actual rates bargained in comparable enterprises or to the prevailing level of increase in actual rates being achieved at other enterprises at the time. Bargaining is also influenced by the bargainers expectations as to the rate of inflation over the life of a prospective agreement. Increases in award rates are seldom a consideration.
The impact of inflationary expectations on bargaining behaviour was acknowledged by the Joint Governments who stated:
". . . while it is unrealistic to assume that, in the absence of a safety net increase, union wage negotiators would have no regard to external factors influencing the living standards of their members, such as rises in prices an $8 per week safety net increase would be unlikely to add anything to what might otherwise be the starting point for union enterprise bargaining wage negotiators. Inevitably, employee wage expectations entering negotiations incorporate some notion of real wage maintenance, even in a low inflation environment and in an enterprise bargaining system which is substantially productivity based. If the safety net increase of $8 per week proposed by the Joint Governments plays a role in unions' initial position in wage negotiations, it is likely that this would be in place of rather than in addition to other factors."148
The Joint Governments also argued that an $8 per week safety net increase would represent a 2.3 per cent increase for a worker at the C14 level in the Metal Industry Award 1984 - Part I and, given a forecasted underlying inflation rate of 2 per cent in the year to the June quarter 1997, this would roughly maintain the real value of such a worker's wage.
There are two weaknesses in this argument.
First, there are in fact very few workers employed at the lowest award classification level, C14.149 Further any worker employed in a classification above level C12, ie $388.60 per week, will not have the real value of their wages maintained by an $8 per week adjustment.
Second, and more importantly, the proposition advanced by the Joint Governments ignores the fact that in circumstances where there is an agreement in place (ie in the majority of cases) the wages base for enterprise bargaining is the previous agreement not the underlying award rate. As bargaining outcomes have significantly exceeded increases in award rates of pay since 1992150 the effective wages base for agreement making will generally be significantly above the relevant award rate. As a consequence real wage maintenance in the bargaining context would require an increase well above the $8 proposed by the Joint Governments.
Accordingly I do not agree with the submission by the Joint Governments that a safety net increase of $15 would have "a substantial impact on the starting point for many wage negotiations".151 Given the level of the wages base for enterprise bargaining it is likely that a substantial part of such an increase would have already been factored into the negotiating framework.
(4) Employer Behaviour: I accept that employers may, of their own volition, decide not to absorb an award safety net adjustment. However in my view it would be unfair to limit safety net increases directed to the low paid on the basis that employers, of their own initiative, pass on wage increases in a manner contrary to the terms and spirit of a decision of the Commission and notwithstanding union commitments to absorption.
As noted above the Joint Governments proposed an $8 safety net adjustment subject to an AWOTE cut off. It was submitted that such an adjustment would increase AWOTE by 0.21 per cent.152 On the basis of this cost estimate the Joint Governments submitted that the $8 increase they proposed was:
". . . economically responsible and affordable. It is consistent with the Commonwealth Government's Budget-time forecasts, including for continued solid growth in economic activity in 1996-97, which were outlined in Chapter 4. In particular, it is consistent with continued moderate wages growth and thus low inflation. Critically, our proposed approach will not jeopardise employment . . . In light of their projected modest contribution to wage growth, our proposed safety net increases will clearly assist in the continued achievement of moderate and sustainable growth in aggregate wages. Importantly, given the centrality of wages to the course of inflation, our proposed safety net increases are also consistent with, and indeed strongly supportive of, the Government and the Reserve Bank's target for underlying inflation of two to three per cent on average over the course of the business cycle."153
Implicit in the Joint Governments submission is the notion that there is a level of earnings growth which is consistent with an underlying inflation rate of 2 to 3 per cent. Earnings growth is influenced by a number of factors including movements in bargaining, executive salaries and award rates.
The forecast for earnings growth in the 1996-97 budget statement was 4.5 per cent. 154 Hence in the context of an expected average earnings growth of 4.5 per cent the Joint Governments submitted that a 0.21 per cent increase in AWOTE would be "economically responsible and affordable".
However the 1996-97 budget estimate for earnings growth was subsequently revised downwards in the mid-year economic and fiscal review, from 4.5 per cent to 4.25 per cent.155 The revised forecast of 4.25 per cent incorporates the $8 safety net adjustment proposed by the Joint Governments.
Given that earnings growth is now forecast to be lower than originally estimated it seems reasonable to assume that there is now greater scope for an increase in the award safety net. Indeed it could be argued that there is scope for the $8 adjustment proposed by the Joint Governments to be increased by an amount equal to a 0.25 per cent increase in earnings.
Assuming that a 0.25 per cent increase was added to the 0.21 per cent increase in AWOTE, estimated by the Joint Governments to be the cost of their proposed $8 safety net adjustment, then there would be scope for a 0.46 per cent increase in AWOTE. Indeed this would understate the available scope as the budget estimates referred to above are calculated on a national accounts basis, excluding voluntary redundancies and superannuation payments to Commonwealth public servants. Hence earnings growth captures a broader range of effects, of which increases in AWOTE is but one.
The Joint Governments estimated that the direct wage effect of a $12 per week safety net adjustment with full absorption would only increase AWOTE by 0.4 per cent.156 Hence on the Joint Governments' own calculations there would now appear to be scope for a safety net adjustment of at least $12 per week.
While it is difficult to be precise about the exact scope available for award based increases it is clear that the revised forecast for earnings growth in 1996-97 provides some scope for an increase in the award safety net above the quantum of increase proposed by the Joint Governments.
There is some evidence that enterprise bargaining outcomes have moderated as union negotiators have adjusted to a low inflation environment.
In its December 1996 Bulletin the Reserve Bank observed that "the pace of wage growth through enterprise bargaining seems to have plateaued".157
Table 12 below provides summary information, on a quarterly basis, for federal wage agreements formalised from the September quarter of 1995 to the December quarter of 1996. As can be seen from the table the Average Annual Wage Increase (AAWI) per employee for agreements formalised in the December quarter of 1996 was 4.4 per cent - down from 5.3 per cent in the June quarter 1996.
|
Quarter |
Private sector
|
Public sector
|
All federal
| ||||||
|
No. of agmts |
Empl's (`000) |
AAWI per emp. |
No. of agmts |
Empl's (`000) |
AAWI per emp. |
No. of agmts |
Empl's (`000) |
AAWI per emp. | |
|
Sep qtr 1995 |
640 |
66.9 |
4.9% |
207 |
189.1 |
3.9% |
847 |
256.0 |
4.2% |
Dec qtr 1995 |
781 |
104.2 |
4.6% |
156 |
114.3 |
4.9% |
937 |
218.4 |
4.7% |
Mar qtr 1996 |
824 |
79.2 |
5.1% |
286 |
171.6 |
4.4% |
1110 |
250.8 |
4.6% |
Jun qtr 1996 |
753 |
159.9 |
6.1% |
118 |
105.8 |
4.2% |
871 |
265.7 |
5.3% |
Sep qtr 1996 |
821 |
105.1 |
5.3% |
161 |
56.1 |
4.0% |
982 |
161.2 |
4.8% |
Dec qtr 1996 |
893 |
166.3 |
4.4% |
73 |
12.0 |
4.3% |
966 |
178.3 |
4.4% |
While each quarterly result may be affected by major agreements formalised at that time159 the Joint Governments submitted that they provide the most useful forward indicator of wage trends available.160
Further, information on the inflationary expectations of union negotiators suggests that bargaining outcomes will continue to moderate in 1997. The Australian Centre of Industrial Relations Research and Training (ACIRRT) conducted a survey of the key negotiators/advisers in Australia's top 20 unions in late 1996 and early 1997. The survey results show that between October 1996 and January 1997 the median inflationary expectation for 1997 of those surveyed had fallen from 4 per cent to 3 per cent.161
The above material supports a conclusion that bargaining outcomes in 1997 are likely to be lower than in 1996, in percentage terms. Given that growth in average earnings is substantially the product of bargaining activity, a lower wages outcome from bargaining should provide additional scope for an increase in award rates of pay.
Given the present state of the labour market the likely effect of increases in award wages on employment is clearly a matter of serious concern.
Several of the major parties submitted that anything more than "modest" increases would significantly depress employment.
The allegedly adverse impact of wage increases on employment has two elements:
(1) Macroeconomic Effect: an increase in aggregate wages tends to reduce economic activity and hence reduce employment. Further, wage increases which raise inflation above a rate deemed acceptable to the Reserve Bank would cause a tightening of monetary policy which would in turn reduce economic activity and employment.
(2) Relative Wage Effect: to the extent that the Commission increases the relative wages of particular groups it is likely to exacerbate unemployment among the groups which it wishes to assist.
I accept the proposition that to the extent that a decision of the Commission may bring about an overall level of real wages higher than might otherwise have existed it may have a significant employment cost, although there is uncertainty about the size of such an effect. I also accept that a policy response by the Reserve Bank to counter the perceived inflationary potential of higher wages will adversely affect both employment and unemployment.
However, for the reasons set out in sections 5.3.2, 5.3.3 and 5.3.4 of this decision, the macroeconomic impact of the safety net adjustment I would have awarded would not, in the context of the current economic circumstances, be significant.
The Joint Governments and the NFF submitted the results from economic models (Treasury's TRYM model and the ORANI model respectively) which suggested negative effects on unemployment and employment respectively as a consequence of the implementation of the ACTU's claim. However these models are based on a theoretical underpinning which involves contentious assumptions. Indeed in the case of the model relied on by the NFF the model is based on a hypothesis which makes an adverse employment effect inherent.162 Further, only the effect of the ACTU's claim was modelled, not the economic effect of a more modest increase. In my view the results tendered do not assist in estimating the employment impact, if any, of the safety net adjustment I would have awarded.
The alleged relative wage effect requires careful examination. The claim that raising the wages of the low paid reduces their employment prospects is based on the neoclassical theory of the demand for labour. The basic proposition is that the labour market is like most other markets in that it has a downward sloping demand curve and hence if there is an excess supply of labour (or unemployment) the remedy is to reduce the price (or wage rate). The model underlying this proposition rests on a number of assumptions.
The submission by Emeritus Professor Nevile to these proceedings surveys the theoretical issues associated with the presumption that raising wages will damage employment. He concludes this part of his submission in the following terms:
"To summarise, while neoclassical theory predicts raising minimum wage rates will reduce employment, this prediction rests on assumptions that have been widely challenged. Many observed aspects of the labour market are inconsistent with the assumption of perfect competition underlying neoclassical theory. Apparently identical workers are paid at markedly different wage rates. Implicit or explicit long term contracts are widespread. There are significant transaction costs in hiring and firing. Morale is important and workers may perform better just because wage rates are increased, and so on. In addition feedbacks from other markets are important and are not always easy to predict. The theory is such that it does not produce a convincing case for any stand on the issue except agnosticism. Hence empirical studies are all important.
One final point about the neoclassical theory of labour demand, which also highlights the need for empirical results. Even if one takes neoclassical theory at face value, it only indicates that raising wage rates will reduce employment; it does not predict how important this will be. The practical importance of the theory depends on the slope of the demand curve for labour. If a rise in the minimum wage causes a large fall in employment this is far more serious than if it only causes a very small fall in employment."163
The available empirical evidence also casts doubt on the neoclassical prediction that raising wage rates will reduce employment.
A survey by Brown, Gilroy and Kohen covering the 30 years to 1980 reviewed a large number of studies on the effect of changes in minimum wage rates on the level of employment and concluded that:
"Time series studies typically find that a 10 per cent increase in the minimum wage reduces teenage employment by one to three per cent . . . We believe that the lower half of that range is to be preferred; to the extent that differences in results can be attributed to differences in the specifications chosen, the better choices seem to produce estimates at the lower end of the range . . . Cross-section studies of the effect on teenage employment produce a wider range of estimated impacts . . . but estimates of 0 to .76 percentage points are most plausible.
The effect of the minimum wage on young adult (20-24 years) employment is negative and smaller than that for teenage employment. This conclusion rests on much less evidence than is available for those 16-19 years. The direction of the effect on adult employment is uncertain in the empirical work, as it is in the theory."164
The 1990s saw an increase in the number of published studies, most of which suggested that the Brown, Gilroy and Kohen survey overestimated the effects on employment of a rise in the minimum wage. A study of teenagers in the US by Wellington165 found almost no effects at all. One by Bazen and Martin166 for France found small effects for young people and virtually no effects for adults.
A series of studies by Card and Krueger led the authors to conclude:
"The absence of negative employment effects in all the studies . . . provides reasonably strong evidence against the prediction that a rise in the minimum wage invariably leads to a fall in employment. Although most of the estimated employment effects are insignificantly different from zero, the results are uniformly positive and relatively precisely estimated. We find zero or positive employment effects for different groups of low wage workers in different time periods, and in a variety of regions in the country. The weight of this evidence suggests that it is very unlikely that the minimum wage has a large negative employment effect."167
The most influential of the studies by Card and Krueger was that of the fast-food industry in New Jersey and Pennsylvania. The fast-food industry is a major low-wage employer in the United States. An increase in minimum wages in New Jersey in April 1992 from $4.25 to $5.05 per hour (ie an increase of almost 20 per cent) provided material for a case study of the effect on employment of increases in minimum wages. Prior to the increased minimum wage taking effect the authors surveyed 410 fast-food restaurants in New Jersey and eastern Pennsylvania. The restaurants were resurveyed roughly ten months later, to determine how employment had responded to the increase in the minimum wage. Comparisons between restaurants in New Jersey and those in Pennsylvania where the minimum wage remained at $4.25 per hour, provided direct estimates of the effect of the new minimum wage. Not only did they find no indication that the increase in the minimum wage reduced employment it seemed to have a positive effect on employment. As Card and Krueger stated:
"Contrary to the stark prediction of competitive-demand theory, we find that the rise in the New Jersey minimum wage seems to have increased employment at restaurants that were forced to raise pay to comply with the law."168
The Joint Governments questioned the relevance to Australia of Card and Krueger's results because of the different roles played by minimum wages in the United States and award wages in Australia:
"It is worth noting, in this context, the large difference between US minimum wages and award wages in Australia. In particular award wage rates in Australia are set at a much higher level relative to both median and average earnings than in the US. Thus the `bite' in Australian award wage rates is much higher than that in the US."169
The Joint Governments' submission referred to an OECD publication in which the argument is advanced that an increase in wages in the short term will undermine employment when the bite is high but have only a small effect when the bite is low.170
However a subsequent OECD study which discussed, among other things, the relationship between institutional intervention into the labour market, pay and employment, concluded:
"The analysis . . . suggests that higher rates of unionisation and collective bargaining coverage reduce the incidence of low paid employment. Other institutional factors, such as legal minimum wages set at high levels and generous welfare benefits, also appear to create a binding wage floor, and lower the incidence of low pay. The impact of these wage floors on labour market outcomes is uncertain. The simple correlations presented suggest that there is no significant tendency for employment to be lower and unemployment higher for inexperienced or low-skilled workers in countries where there are relatively few low paid jobs available."171
The subsequent OECD study does not support the contention advanced by the Joint Governments.
ACCI also gave consideration to the relative wage effect issue and tendered an article by Freeman in which the author states:
"At best, an effective minimum wage will shift the earnings distribution in favour of the low paid and buttress the bottom tiers of the distribution from erosion. At worst, minimum wages reduce the share of earnings going to the low paid by displacing many from employment. Neither outcome is certain, so that enacting a minimum is a risky but potentially `profitable' investment in redistribution."172
ACCI drew attention to a statement by Freeman that the persons who may pay for a minimum wage "are low-wage workers, or some subset thereof, through loss of jobs".173 However, Freeman puts this statement in perspective in the passage which follows:
"If the elasticity of demand for minimum wage workers exceeds one, the minimum will reduce rather than increase the share of earnings going to the low paid. Research on the employment effects of the US minimum and of wages councils minima in the United Kingdom has shown that the elasticity of demand for minimum wage workers hovers around zero. Some well-constructed studies in the United States find employment growing modestly in impacted sectors after a minimum wage increase. Careful British studies found that abolition of wages councils reduced pay but did not raise employment in affected occupations (Dickens, Gregg, Machin, Manning, Wadsworth, and Woodland, 1994; Machin and Manning, 1994; Dickens, Machin, Manning and Wilkinson, 1995). No study in the United States or the United Kingdom has found that increases in minimum wages reduce total employment with an elasticity near unity: the debate over the employment effects of the minimum is a debate of values around zero (see Card, 1992 a, b; Katz and Krueger, 1994; Neumark and Wascher, 1994; Card and Krueger, 1995). Absence of noticeable employment losses in these studies does not, of course, imply that minimum wages much higher than those observed may not risk large job losses nor that minimum wages may not cause employment disasters in particular sectors, such as apparel, or in particular firms. It does imply that at some levels little of the cost of the minimum is borne by low-wage workers."174
Further, Freeburn concludes that while a minimum wage is not a panacea to poverty and low wages, "an appropriately set minimum has the potential to do more good than harm".175 In particular he notes that a minimum wage:
". . . redistributes income. It can improve the well-being of some low-wage workers and limit the tide of rising earnings inequality that has engulfed the United States and the United Kingdom."176
Despite the consensus in the empirical literature that increases in minimum wage rates have at most a very small effect in reducing employment, casual international comparisons have been used to support the argument that increasing minimum wage rates can result in massive unemployment.
In this regard contrasts are often made between the situation in continental Western Europe and the United States. In Europe there are high minimum wage levels and unemployment is over 10 per cent in many countries. In the United States both the minimum wage rate and the level of unemployment are much lower. Such a comparison invites the conclusion that low relative wages at the bottom end of the wage distribution in the United States caused more unskilled workers to be employed.
However a number of studies contradict this general proposition. For example Nickell and Bell conclude that although there was not a large fall in the relative wages of the unskilled in continental Europe, there was in the United Kingdom, but the "unemployment record of the unskilled (there) has been worse than in countries like Germany and the Netherlands".177
Further, a study by Card, Kramuz and Lemieux concluded:
"Consistent with the view that labour market institutions are more rigid in France and more flexible in the United States, we find that relative wages of less skilled workers fell the most in the United States, fell somewhat less in Canada and did not fall at all in France. Contrary to expectations, however, we find little evidence that wage inflexibilities generated divergent patterns of relative employment growth across the three countries."178
The significant fall in wages of the low paid appeared to have no effect in increasing employment among the unskilled in the United States.
A similar result was found in an earlier US-Australian comparison by Gregory.179 In a later paper Gregory compared the labour market experiences of Australia and the United States over the period from the early 1970s to the mid-1990s.180 Gregory found that:
_ between 1975 and 1995 the US produced 27.5 per cent more full-time jobs than Australia, after adjusting for population growth;
_ US employment growth has not delivered income growth to most of the population. Over the 1979 to 1993 period adjusted real personal income of families from the bottom quintile fell 21 per cent, for the next quintile the fall was 7 per cent. Real family income only increased for the top 40 per cent of US families; and
_ the US has created more jobs for less income per job. On average the US population has not become better off relative to Australians.
Gregory also observed that the relative rates of change in the numbers of high paid and low paid jobs have been much the same in the two countries:
"It is remarkable that the pattern of employment outcomes for each country are so similar, even though the aggregate employment growth has been so different. The regulated Australian labour market, with low wage flexibility and the loss of one quarter of male full-time jobs, seems to have produced the same relative employment outcomes as the more flexible US labour market where the loss of male full-time jobs has been confined to one in twelve. It appears as though the difference between the countries must originate in factors which affect employment growth across-the-board and not in factors unique to the United States, which have allowed rapid job growth in low paid jobs."181
Gregory concluded as follows:
"Unemployment and the dispersion of relative wages has been increasing in Australia since 1975. These changes raise the question whether a larger fall in relative wages of the low paid would have led to a better employment record. In particular, the United States has had much stronger employment growth than Australia over the last decade and a half and is clearly a labour market with much greater wage flexibility.
We have shown, however, that the pattern of job growth in the two countries is approximately the same. Both have experienced fastest job growth at the bottom of the earnings distribution. In this respect the United States has not been significantly different from Australia. The key difference is that the United States has generated more jobs at each point of the earnings distribution. As a result it seems unlikely that greater relative wage flexibility will significantly reduce Australia's unemployment problem. If the earnings distribution was to widen further, the major effect would be to create greater levels of inequality rather than sufficient jobs at low wages to deliver full employment."182
In his survey of the empirical studies on the relationship between the minimum wage and employment Nevile concluded:
"Allowing the real value of minimum wage rates to fall will increase inequality in Australia. Modest rises are unlikely to have any significant effect on employment. The theoretical debate on this issue is inconclusive. There have been a large number of empirical studies carried out in other countries. The weight of evidence from these studies is that, at least within the range of differences studied, high minimum wage rates have little or no effect on the employment of unskilled workers."183
In response to a question from the Bench the Joint Governments provided a brief written comment on Professor Nevile's submission, which included the following:
"The Joint Governments agree with Professor Nevile that modest rises in minimum wages are unlikely to have any significant impact on employment. This is one of the reasons we are supporting $8 safety net increases targeted at the low paid. However, our analysis of the literature leads us to the view that larger increases, particularly of the magnitude sought by the ACTU, will have an adverse impact on employment."184
The Joint Governments provide no explanation of their reason for identifying $8 as the magnitude of wage increase beyond which adverse employment effects would occur.
In my view the material before the Commission on the relative wages effect supports a conclusion that, at most, very limited adverse employment effects would result from the level of adjustment I would have awarded.
As noted in section 2 one of the factors which is relevant to the adjustment of the award safety net is the need to encourage the making of agreements between employers and employees at the workplace or enterprise level by maintaining an incentive to bargain.
In this context the Joint Governments submitted that an increase in the safety net would be "too high" if:
". . . it provided for improvements in real wages without employers and employees needing to focus on improving productivity through developing closer and more direct relationships. It would be too high if it meant that employees were content to leave it to the award to establish their actual wages and conditions. It would be too high if it diminished the capacity of employers to use the prospect of achieving better wage outcomes through agreement making as encouragement to solicit and promote greater cooperation and flexibility in work practices and working arrangements."185
The level of adjustment I would have awarded would not significantly reduce the incentive employers and employees may have to engage in bargaining for four reasons.
_ Better outcomes through bargaining: the increases I would have awarded are significantly less than those available through bargaining. For all federal wage agreements current as at 31 December 1996 the average annualised wage increase (AAWI) provided was 4.6 per cent per employee.186 In this regard I acknowledge that there has been some recent moderation in bargaining outcomes, in that federal wage agreements formalised in the December quarter 1996 only provided an AAWI of 4.4 per cent.187
Further I expect bargaining outcomes in 1997 to be lower than in 1996, in percentage terms.188
For an employee on the C13 wage rate of $366.10 per week a $15 adjustment is equivalent to a 4.1 per cent increase.189 Obviously for classifications above C13 the percentage equivalent of a $15 adjustment is lower. While it may be thought that a $15 adjustment provides a C13 employee with the same outcome as those engaged in bargaining it should be remembered that the effective wages base for agreement making is generally significantly above the relevant award rate.190 As a consequence percentage increases obtained through bargaining will generally result in a higher equivalent monetary increase than if the same percentage was applied to award rates of pay. In this regard it should be noted that as a proportion of AWOTE, $15 represents an increase of 2.2 per cent.191
_ The circumstances of low paid employees: employees earning less than the consensual poverty line (ie those earning wages at or below classification C7) are likely to be struggling to make ends meet. Many such employees have to go without basic necessities such as food, clothing and health care.192 In such circumstances it cannot be credibly asserted that a $15 per week increase would result in such employees losing interest in the prospect of further wage increases through enterprise bargaining.
_ Employees at level C6 and above: employees at classification levels above C7 would - under the adjustment I would have awarded - only receive a 2.5 per cent increase. A 2.5 per cent increase is significantly below average outcomes obtained through bargaining and would only have provided a modest real wage increase. Such an increase would not have the effect of removing the incentive for such employees to engage in bargaining.
_ Award simplification: the adjustments I would have awarded are contingent upon the establishment of a program of discussions between the award parties to deal with the review of the award pursuant to item 51 of the Workplace Relations and Other Legislation Amendment Act 1996. As previously noted the facilitation of the award simplification process may enhance the incentive to enter into enterprise bargaining.193
A person earning less than the consensual poverty line of $27,500 or $530 per week is, in my view, low paid.194
Many employees earning less than the consensual poverty line are struggling to make ends meet and have to go without basic necessities.195
Given the clear relationship between wages and living standards, the needs of the low paid are best met by increasing their wages.196
The real value of award rates of pay have fallen over the last decade and movements in award rates have been consistently below increases in AWOTE and executive salaries.197 While the social security net in Australia has significantly moderated the trend towards inequality in market incomes, it has not managed to reverse the trend. As a consequence income inequality has increased over the past decade.198
The gap between income levels established as a result of enterprise bargaining and those determined by the award system is widening.199
Those who are dependent on an award for wage increases have had their living standards eroded relative to those who have received increases through bargaining.
Given the difficult circumstances being encountered by many low paid employees it is, in my view, appropriate to award the maximum level of increase available consistent with the avoidance of significant economic risk.
The adjustment I would have awarded would have begun to address these problems. In particular:
_ the $15 per week increase to award classification levels at or below the consensual poverty line would have ensured an increase of between 4.3 and 3 per cent depending on classification level;200
_ the 2.5 per cent adjustment to classification levels above the consensual poverty line would have provided a modest real wage increase for persons at these levels;
_ the new minimum safety net wage of $364.40 would have assisted those persons employed under a number of awards which contain adult wage rates below this level;201 and
_ the $15/2.5 per cent adjustment would have narrowed the gap between enterprise bargaining income levels and those determined by the award system. As such it would have reduced income inequality.
I recognise that a $15/2.5 per cent safety net adjustment will not overcome the difficult circumstances being encountered by low paid employees - but it is a beginning. In particular it is a more appropriate starting point than the $8 per week adjustment proposed by the Joint Governments.
An $8 adjustment would not maintain the real value of the wages of persons employed above classification level C12, ie $388.60. As a consequence many of those workers below the consensual poverty line of $530 per week would suffer a further real wage reduction.
Indeed, given the loss of social wage income as a result of the recent Federal Budget it is doubtful that an $8 adjustment would even maintain the real value of the wages of many of the employees on the lowest award classification level. In this regard it should be remembered that the heaviest losses relative to income from the 1996-97 Federal Budget occurred among low income groups.202
An adequate minimum wage should be sufficient to attain a level of material and social well-being considered minimally acceptable by the community generally. In my view the minimum safety net wage should, over time and consistent with prevailing economic conditions, be increased to the level of the consensual poverty line with consequent adjustments through the award structure to retain existing relativities.
The statutory provisions relevant to the award simplification process are set out in Part 2 of Schedule 5 to the Workplace Relations and Other Legislation Amendment Act 1996. A summary of the relevant provisions is set out in section 2 of this decision.
Item 50 of Part 2 provides that at the end of the interim period (defined in item 46 as the 18 month period beginning on the day on which s.89A of the new Act commenced) each award ceases to have effect to the extent that it provides for matters other than allowable award matters.
Item 51 of Part 2 requires the Commission to review each award at the end of the interim period to remove provisions which have ceased to have effect under item 50. The Commission is also required, if it considers it appropriate, to review each award to determine whether or not it meets the criteria specified in items 51(6) and (7), for example:
Item 51(8) provides that if the Commission determines that the award does not meet the criteria set out in sub-item (6) or (7), the Commission may take whatever steps it considers appropriate to facilitate the variation of the award so that it does meet those criteria.
While the ACTU and the Joint Governments submitted that there should be no conditionality attached to accessing safety net increases, in my view it is appropriate to facilitate an orderly transition to the simplified award system envisaged by the new Act. Such a consideration is consistent with the Commission's statutory obligations.
One of the objects of Part VI of the new Act is to ensure that:
". . . (c) Awards are simplified and suited to the efficient performance of work according to the needs of particular workplaces or enterprises . . ."
Section 88B(1) provides that the Commission must perform its functions under Part VI in a way that furthers the objects of the Act and, in particular, the objects of Part VI.
Item 47 of Part 2 of Schedule 5 to the Workplace Relations and Other Legislation Amendment Act 1996 states:
"In exercising its powers under this Part, the Commission is to have regard to the desirability of assisting parties to awards to agree on appropriate variations to their awards, rather than have parts of awards cease to have effect under item 50 at the end of the interim period."
In addition to the relevant statutory provisions the facilitation of the award simplification process may enhance the incentive to enter into enterprise bargaining203 and increase productivity. A number of the criteria to be examined in a review of an award are directed to removing impediments to productivity and the efficient performance of work.204 In this regard I note that a linkage between the commencement of the award review process and accessing the safety net adjustment I would have awarded is consistent with ACCI's submission that any safety net adjustment should be subject to productivity tests.205
Any increase in productivity as a result of the facilitation of the award simplification process will reduce the economic impact of the adjustment I would have awarded.
Further, in the course of its submission the Joint Governments emphasised the importance of the process of award simplification:
"The legislative reforms in this area reflect the overwhelming need to expedite the simplification of awards and to shift the focus of the system to the relationship between the employer and employee at the enterprise level."206
The conditions which I would have attached to the awarding of the safety net adjustment would have expedited the simplification of awards.
The adjustment I would have awarded seeks to strike a balance between the maintenance of existing award based skill relativities and providing an additional benefit to the low paid. Relativities are maintained above the C7 level by virtue of the percentage adjustment and the low paid are provided with additional assistance by means of a $15 adjustment to classifications at C7 and below.
I recognise that a flat $15 adjustment would have resulted in some compression of relativities but in my view the disadvantages of such an outcome are outweighed by the benefits accruing to low paid employees.
A decision to award a percentage increase above the C7 level would have assisted in maintaining the integrity of the skill based classification structure so that the acquisition of training, skills and responsibility continued to be properly reflected in the associated award wage structure.
In my view the maintenance of a skill based classification structure can provide a career path to assist low paid workers to gain higher wages. The provision of such assistance to the low paid is consistent with the Commission's obligations under s.88B(2)(c). Such a construction was supported by the Joint Employers in these proceedings.207
While the maintenance of an award based career path structure is an important means of assisting the low paid it is not of itself sufficient as many workers do not in fact progress up the structure. In this regard a 1996 OECD study concluded:
"The patterns of movement into low paid jobs also suggest that low paid workers in any given year have very diverse prospects and histories . . . a considerable share of low paid workers in 1991 were either also low paid workers in 1986 or had experienced downward earnings mobility. The former group shows considerable persistence in low paid employment and probably has relatively poor prospects for obtaining significantly better jobs."208
ABS statistics show that the gender earnings differential - which measures female to male earnings ratios - has fallen in recent years.
The latest data from the annual ABS survey of employee earnings and hours shows that male earnings grew at a faster rate than female earnings in the year to May 1996. Average weekly ordinary time earnings for full-time adult non-managerial employees was $657.10 for males, compared with $585.70 for females, an increase of 4.4 per cent and 2.2 per cent respectively.209 The ratio of female-to-male AWOTE for full-time adult non-managerial employees fell from 92.1 per cent in May 1994 to 89.1 per cent in May 1996, a decline of 3 percentage points.
While there is some volatility in the data year to year it is apparent that the gender earnings differential has been declining for a number of years.
As noted by the Joint Governments many factors will have had an impact on women's relative earnings including over representation in low wage sectors.210 In May 1996, 33 per cent of all female full-time non-managerial employees earned less than $500 per week compared to only 19 per cent of male employees in the same category.211
The adjustment I would have awarded was designed to provide a proportionately greater benefit to those employees at classification level C7 (ie $503.80 per week) and below. Accordingly such an adjustment would have particularly benefited women workers and had a positive impact on the gender earnings differential.
For the reasons given I would have awarded the following:
"The rates of pay in this award include the $15/2.5 per cent per week arbitrated safety net adjustment payable under the April 1997 Review decision. This arbitrated safety net adjustment may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required.
Increases made under previous National Wage Case principles or under the current Statement of Principles, excepting those resulting from enterprise agreements, are not to be used to offset arbitrated safety net adjustments."
- enable the employment of regular part-time employees; and
- provide support to training arrangements through appropriate trainee wages and a supported wage system for people with disabilities;
I broadly concur with the following aspects of the majority decision:
However I wish to address two particular issues, namely, paid rates awards and paragraph 3.3 of the New Statement of Principles.
I agree with the conclusion of the majority that the Commission has the power to vary existing paid rates awards and only wish to supplement the reasons provided in the majority decision.
Central to the determination of this issue is s.89A(3) which states:
"(3) The Commission power to make an award dealing with matters covered by subsection (2) is limited to making a minimum rates award."
In my view s.89A(3) provides the Commission with the power to vary existing paid rates awards but may preclude the making of new paid rates awards. Four reasons may be advanced in support of this conclusion.
(1) Legislative History: I consider the meaning of s.89A(3) to be ambiguous and on that basis it is permissible to use extrinsic material as an aid to interpretation pursuant to s.15AB(1) of the Acts Interpretation Act 1901. Section 15AB(2) of that Act sets out some of the material which may be considered in accordance with s.15AB(1). Section 15AB(2) does not purport to set out an exhaustive list of the material to which regard may be had. Section 15AB(2)(h) refers to:
"(h) any relevant material in the Journals of the Senate, in the Votes and Proceedings of the House of Representatives or in any official record of debates in the Parliament or either House of the Parliament."
In my view extrinsic material of the type referred to in s.15AB(2)(h) includes the relevant legislative history. If I am wrong in this respect, s.15AB(2) is not exhaustive and I can see no good reason for excluding amendments made to a Bill during the course of its debate in Parliament.
In the circumstances of this case it should be noted that in the Bill, what is now s.89A(3) contained the words "to make or vary". Subsequently an amendment was moved on behalf of the Government and the Australian Democrats that the words "or vary" be deleted from s.89A(3). This amendment was made.
The amendment made to what is now s.89A(3) supports an inference that the words "to make . . . a minimum rates award" in the Act mean something different to the words "to make or vary . . . a minimum rates award" which appeared in the Bill. The legislative history supports a conclusion that the limitation in s.89A(3) is directed at the making of new awards not the variation of existing paid rates awards.
The usefulness of a knowledge of amendments made to a Bill was commented on by Barwick CJ in the following terms:
". . . I would wish to say that whilst I am quite clear that no relevant assistance can be obtained from speeches in the legislature, even from the second reading speech of the Minister introducing the Bill, I can see the possibility of relevant profit in knowing the changes which take place in the Bill between its introduction and its passage. These, unlike the speeches, result from action of the legislature itself. The changes may well be classified as travaux preparatoires to which heed is paid in other systems of law. However, authorities of long standing would not allow of this possible advantage being taken."212
It should be noted that his Honour's comments were made before the insertion of s.15AB into the Acts Interpretation Act 1901.
(2) Legislative Context: s.89A(3) should be construed in the context of the Act in which it appears.213 In this regard it should be noted that s.89A(4) states:
"The Commission's power to make or vary an award in relation to matters covered by paragraph (2)(r) does not include:
(a) the power to limit the number or proportion of employees that an employer may employ in a particular type of employment; or
(b) the power to set maximum or minimum hours of work for regular part time employees."
As can be seen the words "power to make or vary an award" are used in s.89A(4) whereas the words "power to make an award" are used in s.89A(3). Such a change in wording supports an inference that Parliament intended a change in meaning214 - namely that the limitation in s.89A(3) does not apply to existing awards.
(3) Item 49(5) of Schedule 5 of the WROLA Act: The Joint Governments argued that item 49(5) provided the only way in which a paid rates award can be varied during the interim period (that is, during the 18 months starting on 1 January 1997). I am unable to agree with this proposition. The language of item 49 does not, in my view, support a conclusion that it was intended to be a code. In this regard it may be contrasted with the language of, for example, s.170LT(1) of the Act which states:
"(1) If an application is made to the Commission in accordance with Division 2 or 3 to certify an agreement, the Commission must certify the agreement if, and must not certify the agreement unless, it is satisfied that the requirements of this section are met."
Item 49 does not state that it is the only means by which a paid rates award may be varied.
(4) Paid Rates Awards: If I am wrong about the interpretation of s.89A(3) and it does operate to limit the Commission's power to the making and variation of minimum rates awards, that does not necessarily conclude the matter. A paid rates award may be regarded as an award which specifies the minimum rates of pay and conditions that must be provided. In State of Victoria v. MacBean the Industrial Relations Court made the following observation:
"The making of the Award as a paid rates award has limited practical consequences for the applicant. It is precluded from paying wages below the rates prescribed or providing conditions less than those prescribed. In that sense the award is, as a paid rates award, prescribing minimum wages and working conditions."215
If a paid rates award is construed as prescribing minimum wages and conditions then it would be permitted by s.89A(3).
In relation to paragraph 3.3 of the new Statement of Principles I do not agree with that part of the majority decision which would require applications involving a consideration of s.89A(7) of the Act to be referred to the President for consideration as a special case.
Section 89A(7) provides as follows:
"Subsection (1) does not exclude a matter (the exceptional matter) from an industrial dispute if the Commission is satisfied of all the following:
(a) a party to the dispute has made a genuine attempt to reach agreement on the exceptional matter;
(b) there is no reasonable prospect of agreement being reached on the exceptional matter by conciliation, or further conciliation, by the Commission;
(c) it is appropriate to settle the exceptional matter by arbitration;
(d) the issues involved in the exceptional matter are exceptional issues;
(e) a harsh or unjust outcome would apply if the industrial dispute were not to include the exceptional matter."
Section 120A deals with orders of the Commission on exceptional matters and states:
"(1) Each exceptional matters order must relate to a single matter.
Note 1: An exceptional matters order is an order made by the Commission on a matter that is allowed to be included in an industrial dispute because of subsection 89A(7).
Note 2: Exceptional matters orders are published under section 143, in the same way as other orders of the Commission.
(2) The Commission must not make an exceptional matters order unless the Commission is satisfied that making the order is in the public interest, and consistent with the objects of this Act.
(3) The Commission must not make an exceptional matters order that would apply to more than a single business unless the Commission is satisfied that such an order is an appropriate manner of settling the matter in dispute.
(4) An exceptional matters order must be made by a Full Bench, unless the order relates to a single business (within the meaning of Part VIB).
(5) An exceptional matters order ceases to be in force 2 years after it is made, and cannot be extended."
In my view it is inappropriate to require every matter involving a consideration of s.89A(7) to be the subject of a special case application. I have reached this view for three reasons.
First, section 120A(4) makes it clear that not all proceedings in relation to exceptional matters require consideration by a Full Bench. In particular, an order relating to a single business (within the meaning of Part VIB of the Act) can be made by a single member of the Commission.
Second, an exceptional matters order in relation to a single business will usually not involve issues of sufficient general importance to warrant consideration by a Full Bench. In this regard ss.89A(7)(d) and (e) provide that the Commission must be satisfied that the issues involved are exceptional and a harsh or unjust outcome would apply if the industrial dispute were not to include the exceptional matter. Such considerations are dependent on the particular circumstances, with little prospect of flow on. This is also supported by the fact that the Act does not require an exceptional matters order in relation to a single business to be dealt with by a Full Bench.
If matters of this type - ie single business exceptional matters orders - were referred to a Full Bench the risk of flow on may be greater as the outcome will be seen to have greater precedent value.
Third, there is no justification for requiring parties seeking an exceptional matters order to meet the additional requirement of justifying the matter being dealt with as a special case. The requirements of s.89A(7) are sufficient. In particular, s.89A(7)(d) requires that the Commission must be satisfied that the issues involved in the matter are "exceptional issues". It seems superfluous to also require that such issues be "special".
I also wish to note that I agree with the observation in the majority decision that as various provisions of the new Act specify the manner in which the Commission is now to operate a Statement of Principles may no longer be appropriate. This question can be addressed in subsequent proceedings.
Section 88B(2) of the new Act provides that the Commission must ensure that a safety net of "fair minimum wages and conditions of employment is established and maintained", having regard to:
"(a) the need to provide fair minimum standards for employees in the context of living standards generally prevailing in the Australian community;
(b) economic factors, including levels of productivity and inflation, and the desirability of attaining a high level of employment;
(c) when adjusting the safety net, the needs of the low paid."
The establishment and maintenance of fair minimum wages involves a consideration of economic and social factors. The most appropriate balance between these factors is a matter of judgment and opinions may differ.
The major economic indicators currently available are reasonably positive or, at least, do not suggest any basis for undue caution in addressing the claims before the Commission. Other than unemployment, recent general economic conditions including the outlook for reasonable profitability, improved productivity, strong business investment and a low underlying inflation rate, provide a positive environment in which some attention might be directed to the needs of the low paid.
In terms of the relevant social considerations an adequate minimum wage should be sufficient to attain a level of material and social well-being considered minimally acceptable by the community generally. The Saunders and Matheson consensual poverty line is the most useful current benchmark for income adequacy and a person earning below this level may be regarded as low paid.
A household of a single adult with no dependents is the most appropriate benchmark household type in the context of determining an adequate minimum wage. For a single adult with no dependents the current consensual poverty line of $21,700 net is roughly equivalent to a gross income of $27,500 or $530 per week. Hence persons employed at or below the rate prescribed for classification level C7 in the Metal Industry Award 1984 - Part I (ie $503.80 per week) are below the consensual poverty line.
Many employees earning less than the consensual poverty line are struggling to make ends meet and have to go without basic necessities such as food, clothing and health care.
On this occasion I would have awarded a safety net increase of $15 per week for the persons employed at or below classification level C7 and a 2.5 per cent increase for those employed above C7.
I recognise that a $15/2.5 per cent safety net adjustment will not overcome the difficult circumstances being encountered by many low paid employees - but it is a beginning. In particular it is a more appropriate starting point than the $8 per week adjustment proposed by the Joint Governments which would not even maintain the real value of the wages of many of those workers below the consensual poverty line.
The real value of award rates of pay have fallen over the last decade and movements in award rates have been consistently below increases in AWOTE and executive salaries.
The gap between income levels established as a result of enterprise bargaining and those determined by the award system is widening. Those dependent on an award for wage increases have had their living standards eroded relative to those who have received increases through bargaining.
While the social security safety net in Australia has significantly moderated the trend toward inequality in market incomes, it has not managed to reverse the trend. As a consequence income inequality has increased over the past decade.
The social cost of increased inequality includes a loss of social cohesion and an increased incidence of social problems.
Unless action is taken to substantially renew the system of minimum wage regulation there is a real risk that social divisions will become entrenched.
In my view the minimum safety net wage should, over time, be increased to the level of the consensual poverty line with consequent adjustments through the award structure to retain existing relativities.
In the foreword to the submission by the Brotherhood of St Laurence Bishop Michael Challen, the Executive Director of the Brotherhood, writes:
"With this case before the Industrial Relations Commission we have it within our power to choose to go down a route which promotes greater poverty and misery for low wage workers and their families. We also have it within our power to choose a different, more just, route which ensures that every Australian has a right to a decent standard of living.
If we choose the first option we are in danger of creating a society which is deeply divided between the rich and the poor. If we choose the second, however, we can reaffirm the commitment of Australians to a just society. Given all the pressures which currently divide us, it is therefore important that the commitment be strongly stated."
I agree that wage fixation in Australia has reached a "fork in the road". We can allow the living standards of low paid workers and their families to drift further below community standards, or we can set clear objectives for maintaining and improving them.
The adjustment I would have awarded would have begun to address these problems, in particular:
_ the $15 per week increase to award classification levels at or below the consensual poverty line would have ensured an increase of between 4.3 per cent and 3 per cent depending on classification levels;
_ the 2.5 per cent adjustment to classification levels above the consensual poverty line would have provided a modest real wage increase for persons at these levels; and
_ the new minimum safety net wage would have assisted those employed under a number of awards with adult rates below this level.
In my view the adjustment I would have awarded reflects an appropriate balance between conflicting considerations. In particular it meets the following objectives:
I accept that the economic impact of such an adjustment may be greater than for an increase of $8 or $10. However in my view the cost and economic impact of the increase I would have awarded would not be significant.
In this regard it needs to be borne in mind that wages and conditions of employment are increasingly being determined through enterprise bargaining. As the Commission pointed out in the September 1994 Review decision, insofar as the impact on the economy is concerned it is "the aggregate of wage increases together with the aggregate of other measures including productivity which are important".216
Commission decisions to adjust the award safety net now have an impact on aggregate wages which is much less than that from other sources such as enterprise bargaining. In this respect the circumstances in which this case is to be determined are very different from the context in which past decisions have been made. The provision for full absorption of the adjustment I would have awarded, also distinguishes this decision from the outcomes of previous safety net reviews. Both of these factors operate to significantly reduce the economic impact of the adjustment I would have awarded.
The Commission's role is effectively limited to determining the wages of those employees dependent on the award safety net. There are no direct institutional constraints on wage increases obtained through enterprise bargaining or for that matter on the setting of executive remuneration.
In this context I agree with the observation that given the absence of any institutional constraint on bargaining and executive remuneration there is an inherent unfairness in the proposition that those employees dependent on the award system should bear a disproportionate burden of aggregate wage restraint. As Mr Fitzgerald, on behalf of ACOSS, put it:
"Finally, we reject the assertion put by some that low paid workers should bear the disproportionate burden of restraining aggregate wage outcomes. This would be unfair and unreasonable. Such workers already bear the burden of low and unsustainable wages, the high risk of unemployment and the very real risk of social and economic disadvantage. To expect them to bear a disproportionate burden of restraining wage outcomes as we have indicated would be unfair and unreasonable."217
If we are to begin to address the problems confronting low paid employees and the widening gap between award and market wages we must do more than simply maintain the real wages of the low paid. Such an outcome simply preserves the status quo. A status quo in which income inequality is increasing and many low paid workers and their families have to go without food or clothing, is neither fair nor equitable.
As Saunders and Matheson put it:
"To deny sections of the community a minimum standard of living is to condone `poverty amongst affluence' a situation which is both personally humiliating and morally indefensible." 218
BY THE COMMISSION:
S. Jones for all applicant unions and with W. Kelty, J. George, G. Combet, N. Gayner, T. Harcourt and G. Palajava for the Australian Council of Trade Unions (intervening).
B. O'Connor for the Australian, Municipal, Administrative, Clerical and Services Union.
T. Kennedy for the National Union of Workers.
T. Ferrari for the Australian Liquor, Hospitality and Miscellaneous Workers Union.
J. Herdon for the Textile Clothing and Footwear Union of Australia.
S. Burnley for the Shop, Distributive and Allied Employees Association.
A. Bukarica with W. Bodkin and S. Maxwell for the Construction, Forestry, Mining and Energy Union.
D. Oliver with N. Apple, A. Sachinidis and S. Taylor for the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union and the Metal Trades Federation of Unions.
R. Hamilton for the respondent members of the South Australian Employers' Chamber of Commerce and Industry, the Metal Trade Industries Association of Tasmania, the Australian Hotels Association, the Victorian Employers' Chamber of Commerce and Industry, respondent members of the Chamber of Manufactures of New South Wales (Industrial), the Confederation of ACT Industry, the Retail Traders' Association of New South Wales, respondent members of the Chamber of Commerce and Industry of Western Australia, respondent members of the Retail Traders' Association of Victoria, Master Builders Australia, respondent members of the Employers' Federation of New South Wales, and the Australian Chamber of Commerce and Industry (intervening).
R. Boland and S. Cullen for the Metal Trades Industry Association of Australia and the Engineering Employers Association, South Australia.
B. Watchorn for the Australian Chamber of Manufactures and its respondent members.
G. Hatton for the Motor Traders' Association of New South Wales.
P. Eblen for The Motor Trade Association of South Australia.
G. Pels and K. Redfern for the Victorian Automobile Chamber of Commerce.
L. Yilmaz for the Tasmanian Automobile Chamber of Commerce.
E.R. Cole with B. Leahy, R. Stewart-Crompton and K. Rehn for the Commonwealth (intervening) and for the States of Victoria, South Australia, Queensland, Western Australia and Tasmania, and for the Australian Capital Territory and the Northern Territory (intervening).
B. Docking and G. Donnison for the State of New South Wales (intervening).
B. Corney for the State of Victoria (intervening).
R. Ewens for the State of South Australia (intervening).
J. Evans for the State of Tasmania (intervening).
M. Hoyle and J. Johnston for the State of Queensland (intervening).
L. Field with L. Halligan and A. Gaccamo for the State of Western Australia (intervening).
R. Pickett for the Government of the Australian Capital Territory (intervening).
T. Tsikouris for the Government of the Northern Territory (intervening).
V. Winley for the Business Council of Australia (intervening).
G. Simpson for Master Builders Australia (intervening).
C. Harnath for the Master Plumbers and Mechanical Services Association of Australia (intervening).
J. Ferguson for the National Farmers' Federation (intervening).
R. Durbridge with M. O'Connor for the Australian Education Union (intervening).
D. James with P. Lee for the Independent Education Union of Australia (intervening).
Commissioner S. Walpole for the Human Rights and Equal Opportunity Commission (intervening).
R. Fitzgerald and P. Davidson for the Australian Council of Social Service (intervening).
J. Bennett for the Women's Electoral Lobby (intervening).
J. Pocock for the Australian Youth Policy and Action Coalition (intervening).
A. McClelland for the Brotherhood of St. Laurence (intervening).
E. Morgan for the Australian Pensioners' and Superannuants' Federation (intervening).
M. Adams, J. Ryan and P. Gair for the Australian Catholic Commission for Industrial Relations (intervening).
|
Wage rates - Safety Net Review - Wages April 1997 - $10 per week arbitrated safety net adjustment and federal minimum wage - decision in respect to ACTU "Living Wage" claim - ACTU claim rejected - flat $10 per week arbitrated safety net adjustment to all award classifications - consideration of cost of ACTU claim - ACTU wage claim would entail a growth rate of AWOTE in excess of current inflation rate - flat money amount increase rather than percentage increase limits additions to AWOTE - living standards and needs of low paid examined - flat money amount proportionately greater assistance to low paid - increases above $10 per week would discourage employees and unions from entering into workplace agreements - minimum wage ("the federal minimum wage") for full-time adult employees of $359.40 per week and for junior, part-time and casual employees of a proportionate amount - federal minimum wage to give effect to the statutory requirement to have regard to needs of low paid when adjusting safety net - federal minimum wage not linked with any defined benchmark of needs - increases fully absorbable against all above award payments - in allowing full absorption of increases regard had to s.3(c) of Act - full absorption permits maximum assistance to award wage-earners within existing cost constraints - variation of both minimum rates and paid rates awards - Commission has power to vary paid rates awards to include a safety net adjustment without first converting the award to minimum rates awards - any outstanding $8 per week arbitrated safety need adjustments available under September 1994 and October 1995 decisions available from same date as $10 per week arbitrated safety net adjustment - previous tests eliminated except the requirement that the model anti-discrimination clause be included in the award - current absorption rules for the $8 per week arbitrated safety net adjustments will remain - phasing in allowed when circumstances justify it - any application for phasing in to be referred to President for consideration - commencement of award variations to give effect to decision to occur no earlier than date award varied except where phasing in of increases permitted - allow for expression of award rates by consent of all parties as hourly rates as well as weekly rates - enable adjustment of allowances which relate to work or conditions which have not changed and service increments to take account of $10 per week arbitrated safety net increase - adjustment of allowances to be consistent with Furnishing and Glass Industries Allowances Case [Print M9675] - adjourn applications to a date to be fixed - federal minimum wage and arbitrated safety net adjustments not determined beyond one year - wage adjustments should be related to contemporaneous information about the state of the economy - CFMEU's wage claim rejected - CFMEU failed to establish that building and construction industry has special characteristics which differentiate it from other industries - no reason to provide degree of relief to employees in building and construction industry which is not generally available - claim that Commission should make a statement relating to discrimination against part-time employees rejected - new statement of principles issued which take account of changes to Act - dissenting decision - Ross VP did not agree with quantum of arbitrated safety net increase awarded nor conditions attached to increase. - would have awarded $15 per week for persons employed at or below classification level C7 in the Metal Industry Award 1984 - Part I or its equivalent and 2.5 per cent for persons employed above classification C7. | |||||
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Application by Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union and other to vary awards | |||||
|
C No. 22275 of 1996 and Ors |
Print P1997 | ||||
O'Connor P
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Sydney |
22 April 1997 | |||
Recommended retail price $12.50
** end of text **
1 Exhibit Commonwealth 8 at 12.
2 ABS, (1997) Labour Force: Preliminary, February1997, Catalogue No. 6202.0 at 8.
3 ABS, (1997) Australian Economic Indicators, February 1997, Catalogue No. 1350.0. See Table 5.3 at 60; Table 7.3 at 89; and Table 7.4 at 90.
4 Exhibit Commonwealth 8 at 76.
5 Lowe P. (1996), Labour-Productivity Growth and Relative Wages : 1978-1994, Economic Research Department, Reserve Bank of Australia at 45. Set out at Tag 3 of the Material in Support of Section E of Exhibit ACTU 5.
6 ABS, (1997) Australian Economic Indicators, February 1997, Catalogue No. 1350.0 Table 1.2 at 3.
7 Exhibit Commonwealth 8 at 57.
8 Reserve Bank (1996), `Quarterly Report on the Economy and Financial Markets' R.B.A. Bulletin, October 1996 at 1. Set out at Tag 1 of the Material in Support of Section E of Exhibit ACTU 5.
9 See Exhibit ACCI 8, Volume 2, Section 5 at 5.
10 Exhibit Commonwealth 8 at 55.
11 Exhibit Commonwealth 8 at 52.
12 Budget Paper No. 1 1996-97 at 2-20.
13 AGPS, (1997) Mid-Year Economic and Fiscal Outlook 1996-97 at 1.
21 Exhibit ACTU 5 - Section A at 16.
24 Cited in Exhibit ACOSS 1 at 21.
28 Exhibit Brotherhood 1 at 23.
29 Exhibit Brotherhood 1 at 34.
32 The Smith Family, Australia's Poverty Challenge, Social Issues Paper No. 5, October 1996 at 8.
33 Saunders P. and Matheson G., (1992) Perceptions of Poverty, Income Adequacy and Living Standards in Australia, Social Policy Research Centre, Reports and Proceedings, No. 99 April 1992, University of New South Wales, at 7. Cited in Exhibit ACOSS 1 at 28.
34 King A., (1991) Beyond Henderson, SPRC Newsletter, Social Policy Research Centre, University of New South Wales, September 1992, at 1.
36 Figure 15, Exhibit ACOSS 1.
38 Saunders P. and Matheson G., (1992) Perceptions of poverty, income inadequacy and living standards in Australia, Reports and Proceedings No. 99, Social Policy Research Centre University of New South Wales. Referred to by ACOSS at 685 of the Transcript. See Exhibit ACOSS 1 at 28.
40 Transcript at 685 per Mr Fitzgerald on behalf of ACOSS.
41 See Saunders P. and Bradbury B., (1991) `Some Australian evidence on the consensual approach to poverty measurement', Economic Analysis and Policy, 21(1) March 1991 at 47-48.
42 Saunders and Matheson, op. cit. at 79.
43 Exhibit Brotherhood 1 at 22.
44 ABS, Average Weekly Earnings, Australia, November 1996, ABS Catalogue No. 6301.0. Based on the seasonally adjusted figure for full time adult total earnings.
46 ABS, Employee Earnings and Hours Australia Preliminary, May 1996, Catalogue No. 6305.0, Table 1 on 8. Cf: Exhibit WEL 1 at 6 and Attachment 3.
ABS, Employee Earnings and Hours Australia, May 1995 Catalogue 6305.0. Table 17 at 35.
49 OECD (1996) Employment Outlook, July 1996, at 71 and Table 3.2 at 72-74.
50 ACIRRT (1996), A Profile of Low Wage Employees, Table 2 at 9, appended to Exhibit LHMWU 1.
51 ABS, Labour Force Australia, February 1997, Catalogue No. 6203, Table 39 at 40.
52 Some 72,200 persons were employed in the textile, clothing and footwear sector as at June 1995 : ABS, Manufacturing Industry, Australia 1994-95, Catalogue No. 8201.0, Table 6 at 24-25. I also note that agriculture is a significant employer of labour and the ACIRRT research suggests that a substantial number of employees in the sector are low paid. However it is difficult to determine how many of these employees are owner/operators or family members of owner/operators and how many are employees in the `traditional' sense.
53 Gilley T. & Taylor J., The Impact of Poverty on the Life Chances of Children by Three Years of Age, Brotherhood of St Laurence, Melbourne.
54 McDonald P. and Browlee H., (1994) `Australian Living Standards: The Next Decade', in Disney J. & Briggs L. (eds) Social Security Policy : Issues and Options, AGPS Canberra 1994 at 49-62.
56 McClelland A., `Growth and Inequality : A Welfare Perspective' in Growth Vol 43 July 1995, 116-135 at 120-121. See Exhibit Brotherhood 1 at Attachment 9.
57 Saunders and Matheson, op. cit., Table 5.1 at 82.
60 Education Image, (1996), Making ends meet : the `Living Wage' research at 4. Set out at Tag 5 of the Material in Support of Section C3 of Exhibit ACTU 5.
61 Exhibit ACTU 5, Section C at 110-111.
62 Exhibit Brotherhood 1 at 37.
66 Exhibit Brotherhood 1 at 66.
67 Witness statement of Ms Y. Jelovic, attachment 16 to Exhibit TCFUA 1.
68 Witness statement of Ms Janetta De Chaliam, attachment 3 to Exhibit AMWU 1; Witness statement of Mr Matyas Kiss, attachment 4 to Exhibit AMWU 1.
69 Witness statement of Ms Janetta De Chaliam, op. cit.; Witness statement of Ms Amanda Cullen attached to Exhibit LHMWU 1.
70 Witness statement of Mr Matyas Kiss, op. cit.; Witness statement of Ms Elva Bavilacqua attached to Exhibit LHMWU 1.
71 Witness statement of Mr Matyas Kiss, op. cit.; Witness statement of Ms Millie Seruvakula attached to Exhibit LHMWU 1.
72 Williams T., (1987) Participation in Education, ACER Research Monograph No. 30, Australian Council for Education Research, Melbourne. Cited in McClelland A., 'Growth and Inequality : A Welfare Perspective' op. cit. at 123. See Exhibit Brotherhood 1 at Attachment 9.
73 National Health Strategy, (1992) Enough to make you sick. How income and environment affect health, National Health Strategy Research Paper No. 12, September 1992, Melbourne. Cited in McClelland A., 'Growth and Inequality : A Welfare Perspective' op. cit. at 123. See Exhibit Brotherhood 1 at Attachment 9.
74 Exhibit Brotherhood 1 at 66-67.
75 Exhibit Commonwealth 8 at 103.
76 Exhibit Commonwealth 8 at 40.
78 Saunders P., (1995) Unpacking Inequality : Wage Incomes, Disposable Incomes and Living Standards, Social Policy Research Centre Discussion Paper No. 63 December 1995, University of New South Wales at 20. Cited in Exhibit ACOSS 1at 16.
79 See generally Exhibit ACOSS 1 at 31-40.
81 Johnson D. and Hellwig O., ibid., Table 1 at 3.
82 Johnson D. and Hellwig O., ibid., Table 12 at 26.
84 Johnson D. and Hellwig O., ibid., at 2 and 7.
85 See question at 1229 of Transcript and the Commonwealth's written reply dated 13 February 1997. Cf: The Mid Year Economic and Fiscal Outlook 1996-97, AGPS 1997 - Appendix B.
86 See Exhibit Commonwealth 13, Attachment A.
88 Exhibit ACTU 5, Section C at 114.
89 Transcript at 693 per Mr Fitzgerald on behalf of ACOSS.
91 Brownlee H. and McDonald P. (1994) In Search of Poverty and Affluence, Australian Institute of Familly Studies. Cited in Exhibit ACOSS 1 at 16.
92 Novak T., (1988) Poverty and the State, Open University Press at 21. Cited in Exhibit Brotherhood 1 at 34-35.
93 Saunders P., (1995) A Challenge to Work and Welfare : Poverty in Australia in the 1990s, Social Policy Research Centre Discussion Paper No. 64, University of New South Wales at 13. Cited in Exhibit Brotherhood 1 at 35.
94 ABS (1997) Australian Economic Indicators, February 1997, Catalogue No. 1350.0. See Table 5.3 at 60; Table 7.3 at 89; Table 7.4 at 90.
95 See Exhibit ACTU 5, Table 5 at Appendix 1 to Section C.
96 Saunders P. and Urquhart R., (1996) `Australia Spending Patterns' SPRC Newsletter, 1996, No. 62 August. Cited in Exhibit HREOC 1 at 6.
97 Saunders P., (1995) Unpacking Inequality - Wages Income Disposable Incomes and Living Standards, Discussion Paper No. 63, Social Policy Research Centre, University of NSW, at 11.
98 OECD (1995), The OECD Jobs Study, Evidence and Explanations : Part 1 - Labour Market Trends and Underlying Forces of Change, at 21-22.
99 Saunders P., (1994) Welfare and Inequality, Cambridge University Press. Cited in Exhibit ACOSS 1 at 16.
100 See Exhibit ACOSS 1 at 34.
101 Nevile J.W. (1996), Minimum Wages, Equity and Unemployment - A Submission in the `Living Wage" Case at 5.
102 Thornthwaite T., Kingston C. and Walsh P., (June 1995) Drawing the line on poverty : an assessment of poverty and disadvantage in Queensland, QCOSS Brisbane.
103 Orr E., (1996) The Working Poor Dilemma, The Smith Family, February 1996.
104 Raskal P. and Urquhart R., (1994) Inequality, Living Standards and the Social Wage During the 1980s, SSEI Monograph No. 3, Centre for Applied Economic Research, Social Policy Research Centre, UNSW. Cited in Exhibit HREOC 1 at 5.
107 McClelland A., 'Growth and Inequality : A Welfare Perspective' op. cit. at 118. See Exhibit Brotherhood 1 at Attachment 9.
108 Raskal P., (1993) `The influence of economic inequality and unemployment on the rate of suicide and homicide over the 1980's', paper to the National Biennial Conference, Australian Crime Prevention Society, Brisbane. Cited in Exhibit HREOC 1 at 8.
109 Wedderburn D., (1992) `Economic adversity and crime' in Trends and Issues in Crime and Criminal Justice, No. 40 August at 1-8. Cited in Exhibit HREOC 1 at 8.
110 Freeman R.B., (1996) `Why Do So Many Young American Men Commit Crimes and What Might We Do About It?' in the Journal of Economic Perspectives, Vol 10, No. 1 Winter 1996 at 24-42. Set out at Tag 41 of the Material in Support of Section D of the Exhibit ACTU 5.
111 Cited in Freeman op. cit. at 33.
112 British Medical Association (1995) Inequalities in Health : Occasional Paper, London. Cited in Exhibit HEROC 1 at 8.
113 Exhibit Commonwealth 8 at 41.
114 Exhibit ACCI 7, volume 1 at 42-45.
118 Transcript at 695 per Mr Fitzgerald on behalf of ACOSS.
120 ABS, Average Weekly Earnings - Australia, Preliminary, Cat. No. 6301.0 November 1996.
121 Transcript at 974 per Ms McClelland on behalf of the Brotherhood of St Laurence.
123 See section 8.2.3.3 of the majority decision.
124 Subsections 88(2)(a) and (b) of the Act.
125 Subsection 3(c) of the Act.
126 See section 8.2.5 of the majority decision.
127 Print L5300 at 23; Print M5600 at 76.
129 Enterprise Bargaining in Australia - Annual Report 1995, AGPS 1996 at 37.
130 Exhibit Commonwealth 8 at 88.
132 See Attachment B of Exhibit Commonwealth 13 at 5.
133 Exhibit Commonwealth 8 at 87.
135 Enterprise Bargaining in Australia - Annual Report 1995, AGPS 1996 at 37.
136 Section 3 (d)(i) of the new Act.
137 Exhibit Commonwealth 8 at 5.
138 Budget Statements 1996-97, Budget Paper 1 at 2-44 to 2-46.
139 Exhibit Commonwealth 13, Attachment B at 1.
140 Exhibit Commonwealth 8 at 134.
141 Exhibit Commonwealth 13, Attachment B at 1-2.
142 March 1987 National Wage Case, Print G6800 at 17-19.
143 August 1989 National Wage Case, Print H9100 at 14.
144 October 1993 Review of Wage Fixing Principles, Print K9700 at 23-24; September 1994 Safety Net Adjustments and Review, Print L5300 at 25; October 1995 Third Safety Net Adjustment & Section 150A Review, Print M5600 at 71-76.
145 Exhibit BCA 1 at 3, Transcript at 767 per Mr Winley on behalf of the BCA. Cf: Transcript at 726 per Mr Harnath on behalf of the Master Plumbers and Mechanical Services Association.
148 Exhibit Commonwealth 13, Attachment B at 2.
149 Transcript at 722 per Mr Boland on behalf of the Joint Employers.
150 See Chart 2 of this decision.
151 Exhibit Commonwealth 13, Attachment B at 2.
152 Exhibit Commonwealth 8 at 156.
154 1996-97 Budget Paper No. 1, AGPS (1996) at 2-24. Note: This excludes the expected impact of Commonwealth voluntary redundancies.
155 Mid-Year Economic and Fiscal Outlook 1996-97, AGPS 1997 at 10.
156 See Table 11 at 66 of this decision.
157 See Exhibit Commonwealth 7 at 4.
158 Exhibit Commonwealth 8 at 62. Updated to include the December quarter 1996 figures.
159 For example the June 1996 results were influenced by above average increases in three major bank agreements whereas the December 1996 results were effected by the below average wage rises in several major agreements in aviation and retailing.
160 Exhibit Commonwealth 8 at 62.
161 See Exhibit ACTU 11, Section 3.8.2.
162 The ORANI model, relied on by the NFF, is a general equilibrium model which incorporates a neoclassical assumption that employment will fall in response to a wage increase. Hence the prediction that a wage increase will adversely affect employment is inherent in the model and cannot be verified by it - see Transcript at 739-740. The assumptions underlying the TRYM model were not fully explained and as a consequence cannot be critically evaluated.
163 Nevile J.W. (1996), Minimum Wages, Equity and Unemployment - A Submission in the `Living Wage' Case, at 11-12.
164 Brown C., Gilroy C. and Kohen A. (1982), `The Effect of the Minimum Wage on Employment and Unemployment' in the Journal of Economic Literature vol 20 at 487-528. Cited in Nevile, ibid. at 13.
165 Wellington A. (1991), `Effects of the Minimum Wage on the Employment Status of Youths : An Update' in the Journal of Human Resources vol. 26 at 27-46. Cited in Nevile, op. cit. at 14.
166 Bazen S. and Martin J. (1991), `The Impact of the Minimum Wage on Earnings and Employment in France, OECD Economic Studies, No. 16 Spring 1991 at 200-221. Set out at Tag 19 in the Material in Support of Section D of Exhibit ACTU 5.
167 Card D. and Krueger A.B. (1995), Myth and Measurement : The New Economics of the Minimum Wage, Princeton University Press, at 389-390 cited in Nevile, op. cit. at 15-16.
169 Exhibit Commonwealth 8 at 145.
170 Ibid., see OECD (1996), The OECD Jobs Study : Evidence and Explanations : Part II The Adjustment Potential of the Labour Market.
171 OECD (1996) Employment Outlook, OECD Paris at 60. Set out at Tag 39 of the Material in Support of Section D of Exhibit ACTU 5.
172 Freeman R. (1996), `The Minimum Wage as a Redistributive Tool' in The Economic Journal vol. 106 May 1996, 639-649 at 639. Set out at Tag 8 in Exhibit ACCI 9.
177 Nickell S. and Bell B. (1996), `Changes in the Distribution of Wages and Unemployment in OECD Countries' in the American Economic Review May 1996, 302-308 at 303. Cited in Nevile, op. cit. at 18.
178 Card D., Kramuz F. and Lemieux T. (1996), Changes in the Relative Structure of Wages and Employment : A Comparison of the United States, Canada and France, National Bureau of Economic Research, Working Paper No. 5487 at i. Cited in Nevile, op. cit. at 18-19.
179 Gregory R.G. (1993), `Aspects of Australian and U.S. Living Standards : The Disappointing Decades 1970-1990' in the Economic Record 69 (204) at 61-76.
180 Gregory R.G. (1996), `Wage Deregulation, Low Paid Workers and Full Employment' in Dialogues on Australia's Future, Victoria University of Technology. Set out at Tag 25 in the Material in Support of Section D of Exhibit ACTU 5.
184 Exhibit Commonwealth 13, Attachment G.
185 Transcript at 806 per Mr Cole on behalf of the Joint Governments.
186 Department of Industrial Relations, Wage Trends in enterprise Bargaining - December Quarter 1996.
189 I have selected the C13 classification level because there are very few workers employed at the lowest award classification level, C14. See Transcript at 722 per Mr Boland on behalf of the Joint Employers.
190 See 73-74 of this decision.
191 ABS (1997) Average Weekly Savings Australia - November 1996, Catalogue No. 6301.0.
192 See Section 4.1.2 of this decision.
193 See Budget Statements 1996-97, Budget Paper 1 at 2-44 to 2-46 set out at 68-69 of this decision.
194 See Section 4.1.1 of this decision.
195 See Section 4.1.2 of this decision.
197 See Section 4.2.2 of this decision.
198 See Section 4.2.3 of this decision.
199 See Section 4.2.2. of this decision.
200 Note: There are very few workers employed at the lowest award classification level, C14. See Transcript at 722 per Mr Boland on behalf of the Joint Employers. The percentage increase at the C13 level is 4.1 per cent.
201 In the course of these proceedings ACCI tendered a list of 76 Federal awards which were said to contain weekly adult wage rates below the W.A. minimum wage of $317 - see Exhibit ACCI 11.
202 See 40-45 of this decision.
203 See Budget Statements 1996-97, Budget Paper 1 at 2-44 to 2-46 set out at 68-69 of this decision.
204 For example items 51(6)(b) and (c).
205 Exhibit ACCI 7, volume 1 at 42-45.
206 Exhibit Commonwealth 8 at 10.
207 Transcript at 706 per Mr Watchorn on behalf of the Joint Employers.
208 OECD (1996), Employment Outlook July 1996 at 91. Cited in Exhibit Brotherhood 1 at 6.
209 ABS, Employment Earnings and Hours Australia, Preliminary, May 1996, Catalogue No. 6305.0 at 5.
210 Exhibit Commonwealth 8 at 69.
211 ABS, Employee Earnings and Hours Australia, Preliminary op. cit. Table 1 on 8. Cf: Exhibit WEL 1 at 6 and Attachment 3.
212 South Australian Commissioner for Prices and Consumer Affairs v. Charles Moore (Australia) Ltd (1977) 139 CLR 449 at 457.Such materials may be admitted on constitutional points: Tasmania v. Commonwealth (1904) 1 CLR 329 at 333; Seamen's Union of Australia v. Utah Development Co.(1978) 144 CLR 120 at 142-144.
213 Metropolitan Gas Co. v. Federated Gas Employees Industrial Union [1924] 35 CLR 449, per Isaacs and Rich JJ at 455; K & S Lake City Freighters Pty Ltd v. Gordon G. Gotch Ltd [1985] 60 ALR 509 at 514 per Mason J.
214 Scott v. Commercial Hotel Merbein Pty Ltd [1930] VLR 25 at 30 per Irvine CJ; O'Sullivan v. Barton [1947] SASR 4.
215 Victoria v. MacBean and another, (1996) 68 IR 442 at 454.
217 Transcript at 681 per Mr Fitzgerald on behalf of ACOSS.
218 Saunders P. and Matheson G., (1992) Perceptions of Poverty, Income Adequacy and Living Standards in Australia, Social Policy Research Centre, Reports and Proceedings, No. 99 April 1992, University of New South Wales, at 1.
