AUSCRIPT PTY LTD
ABN 76 082 664 220
Level 4, 179 Queen St MELBOURNE Vic 3000
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TRANSCRIPT OF PROCEEDINGS
O/N VT03311
AUSTRALIAN INDUSTRIAL
RELATIONS COMMISSION
JUSTICE GIUDICE, President
VICE PRESIDENT ROSS
VICE PRESIDENT McINTYRE
SENIOR DEPUTY PRESIDENT WATSON
SENIOR DEPUTY PRESIDENT HARRISON
COMMISSIONER LEWIN
COMMISSIONER HOFFMAN
C2001/4617, 5719, 5720, 5721, 5722,
5803, 5810, 5830, 5833, 5834, 5843,
5844, 5845, 5846, 5847, 5849, 5929,
5933, 5934, 5935 and 6130
TIMBER AND ALLIED INDUSTRIES AWARD 1999
THE HOSPITALITY INDUSTRY - ACCOMMODATION,
HOTELS, RESORTS AND GAMING AWARD 1998
BUILDING SERVICES (VICTORIA) AWARD 1994
LAUNDRY INDUSTRY (VICTORIA) AWARD 1998
CHILD CARE INDUSTRY (AUSTRALIAN CAPITAL
TERRITORY) AWARD 1989
THE VEHICLE INDUSTRY - REPAIR SERVICES
AND RETAIL - AWARD 1983
TRANSPORT WORKERS AWARD 1998
RETAIL AND WHOLESALE INDUSTRY - SHOP
EMPLOYEES (ACT) AWARD 2000
HORSE TRAINING INDUSTRY AWARD 1998
CLERICAL AND ADMINISTRATIVE EMPLOYEES
(VICTORIAN) AWARD 1995
VICTORIAN LOCAL AUTHORITIES AWARD 2001
STORAGE SERVICES (GENERAL) AWARD 1999
GROCERY PRODUCTS MANUFACTURE -
MANUFACTURING GROCERS AWARD 1996
COMMERCIAL SALES (VICTORIA) AWARD 1999
RUBBER, PLASTIC AND CABLE MAKING
INDUSTRY AWARD 1999
THE VEHICLE INDUSTRY AWARD 1992
CLOTHING TRADES AWARD 1999
GRAPHIC ARTS (GENERAL) AWARD 2000
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998 - PART I
METAL, ENGINEERING AND ASSOCIATED
INDUSTRIES AWARD 1998 - PART III
Applications under section 113 of the Act
to vary the above awards re living wage
case matters (s.108 References)
MELBOURNE
9.33 AM, FRIDAY, 5 APRIL 2002
Continued from 4.4.02
PN1362
JUSTICE GIUDICE: Dr Kates.
PN1363
DR KATES: Thank you, your Honour. If the Commission pleases. I would begin with a number of housekeeping matters from yesterday, and I would first like to tender a transcript of a door stop by the Treasurer, Peter Costello, which he gave yesterday. I tender this.
EXHIBIT #ACCI5 TRANSCRIPT OF INTERVIEW BY THE TREASURER DATED 04/04/2002
PN1364
DR KATES: The value of this particular interview with the Treasurer is in the fact that he is trying to make the point that things are all right, conditions are improving. But we are far from the kind of world economy that we would like to have. And if I could just read from this. The Treasurer opens his statement, and it is in relation to the release of the retail sales figures which were 0.3 per cent which actually were below what had been expected. And what he said was this:
PN1365
Today's retail trade figures showed a solid growth in the retail trade in the month of February of 0.3 per cent. It is welcome news because it came on the back of very strong growth in January of about 1.4, but it is a solid result and it is consistent with an economy which is growing in a solid way. I think there has been a tendency in recent days to engage in some irrational exuberance in relation to the economy. We are still in a very difficult world situation. The Australian economy is growing faster than every other developed economy in the world. But this is still a difficult world environment and anybody who thinks there is a sunny up-lands all the way home from now on would be mistaken. Australian is growing solidly in terms of retail trade. There is a lot of consumer confidence in the Australian economy, supported by low interest rates and low tax rates, but the international environment is still a very sticky one and it will take considerable care and economic management over the next 12 months.
PN1366
So a journalist asked then whether this would validate a cut in interest rates next month, and he said:
PN1367
Well, I have noticed a lot of the press commentary, I think, over recent months has swung from the pendulum of despair to the pendulum of exuberance in a very short space of time. The international environment is a very difficult environment. A Japanese recession, the United States very weak, Europe very weak. It is true Australia is the best performing economy in the developed world, but you do not want to think that we are out of the woods. It is still a difficult environment. Now, the good thing about today's figures is that they show that retail trade grew in February after a very good growth in January. But it is solid. It is not run-away. It is solid growth. The kind of solid growth you would be hoping for in this difficult international environment.
PN1368
And I end the quote there. I think what the Treasurer is trying to do is highlight the fact that the Australian economy is doing well. It is doing relatively well in comparison with the rest of the world, and certainly it is doing relatively well in comparison with what we thought the economy would be like when we were thinking ahead 12 months ago to the present. But it is only in that kind of relativistic comparison rather than any kind of absolute or historical context that we are doing well. It is not run-away. It is not a certain course pointed to prosperity, and unless we manage our affairs properly, and in this case they were talking about interest rates, but in this quarter we are talking about movements in the safety net, unless we do all of this properly we will not get the outcomes and we will not sustain the growth, and we will not maintain the movement towards full employment that we are looking for.
PN1369
I would also like to come to something that was raised by - sorry. Yes, I am sorry. With the issue of realisation rates were raised yesterday, and I would like to tender an exhibit dealing with the private new capital expenditure series. Will that be marked, your Honour.
[9.39am]
PN1370
JUSTICE GIUDICE: This arises out of questions yesterday, does it?
PN1371
DR KATES: Yes, from Commissioner Lewin, your Honour.
PN1372
PN1373
DR KATES: And if we could go back to table 5 of yesterday's exhibit, ACCI4.
PN1374
JUSTICE GIUDICE: Yes, which page was that, Dr Kates?
PN1375
DR KATES: That is on page 10 of the series of tables that we introduced yesterday.
PN1376
JUSTICE GIUDICE: Yes.
PN1377
DR KATES: And what we were trying to show was that what people say they may invest in January and February of the previous year, first of all, does not always turn out to be what does happen, and secondly, that during the year there is an upward revision of the estimates, so that there is an increase in the expected level of investment as we move through the - into the financial year and then through it. What this table does, it is just a copy of what is found on the next page, which is that realisation rates, total realisation rates, which is the third block from the bottom on the second page of the exhibit, and we have just reproduced that on - in isolation.
PN1378
So it can be seen that what happens during the year is that realisation of the expected has a very great variation between years. So that if you just look down the column for estimate 1, in 1998/1999 the realisation ratio there is 1.18, and what that means is that by the end of the year the actual level of investment was 18 per cent higher than it had been expected at the beginning, or on that first estimate back in January/February of 1998. As you look down the column, you will see that there are variations in the realisation so that 1999/2000, at the end of the year, investment had actually been 32 per cent higher.
PN1379
In 2000/2001, it had been 20 per cent higher. And then the five-year average is 1.30 and therefore it indicates that there was a 30 per cent improvement between the first estimate made in January/February, and the ultimate level of investment at the end of the financial year. So what we are pointing out is that what is expected or what business hoped to do, if you are thinking in vertical terms relative to the same expectation of the year before, does not necessarily eventuate unless the economic conditions that surround you happen to be conducive to that investment taking place.
PN1380
I would also point out, if I could, just that the - if one looks at the chart for realisation rates, you can see that the first estimate is just a blank - is a blank column in each of the years. So that you have on that chart, from 1997/1998 - I am back on exhibit ACCI4, your Honour, and this is page 10 I am looking at. And what you see is in each year that initial level of expected investment is exceeded by the actual. So that during the year the numbers do increase so that our expectation would be that it would be higher. At the end of the year, the actual level of investment would be higher than the one that has been forecast back in January/February, but how much higher is the big issue, because in 1998/99 the difference was only 18 per cent.
PN1381
In other years, it has been 30 per cent. What we are endeavouring to say is - and I suspect this is the same point the Treasurer was making - that irrational exuberance, because we think everything is just set and in place would be a wrong assumption to make about the economy. There are still many problems, many a slip between cup and lip, and we have not yet got to the stage where because we see this expectation in January/February, that we can be in any way assured that the outcome will be of that order of magnitude when the final story is told.
PN1382
If I could turn to another matter, yesterday we noted that the National Institute of Labour Studies had produced a paper on the state of the labour market, and on what had happened during the last year, in particular during the whole of 2001. And I would like to tender that paper and say a few words about it.
PN1383
MR WATSON: Well, we would like to know if this was unavailable to the ACCI before they commenced - before they filed their last written submissions?
PN1384
JUSTICE GIUDICE: Well, perhaps if you have a look at it and then, if you want to make an objection, do so.
[9.45am]
PN1385
JUSTICE GIUDICE: Just a moment, Dr Kates.
PN1386
DR KATES: It is the case, your Honour, that we only - - -
PN1387
JUSTICE GIUDICE: Just a moment, Dr Kates.
PN1388
DR KATES: Sorry.
PN1389
MR WATSON: Well, your Honour, it appears to have been published on 1 March 2002. The ACCI filed its submissions in these proceedings well after that date; in fact it most recently filed submissions just before Easter, and the directions in relation to the matter were quite specific about the filing of additional material in the course of the hearing, and so in the circumstances we would object to its tender.
PN1390
JUSTICE GIUDICE: Mr Watson, on what basis do you say it was published on 1 March?
PN1391
MR WATSON: Well, at the very top of the page, ABL volume 28, number 1 - I am sorry, number 1, March 2002. I am sorry. Well, it appears to have been published in March. We cannot say precisely what date, but we can say that the ACCI last filed submissions on the last business day in March. So unless it was published over the course of Easter, then it was presumably available to them prior to the filing of their last submissions. If the Commission pleases.
PN1392
JUSTICE GIUDICE: Yes. Dr Kates?
PN1393
DR KATES: Well, I do not know the exact date of publication, but my assumption would be that the National Institute would have press released on it when they released it. The fact that it was in yesterday's newspaper suggests to us that the paper was only available as of yesterday. No newspaper will publish old news, and the fact that it says March - - -
PN1394
JUSTICE GIUDICE: I do not know about that. Dr Kates, it came to your attention yesterday; is that the position?
PN1395
DR KATES: It did indeed, yes.
PN1396
JUSTICE GIUDICE: Yes.
PN1397
DR KATES: And beyond that I might say that each of the issues raised in this paper is extraordinarily relevant to the matters that we are dealing with in this case, because it pertains exactly to the labour market as it has unfolded over the past year, but it also has a discussion of the safety net so that - - -
PN1398
JUSTICE GIUDICE: Yes. Do you have anything else to say about it, Mr Watson?
PN1399
MR WATSON: No, your Honour.
PN1400
PN1401
DR KATES: Thank you, your Honour. If I could just go through this in a somewhat rapid way, but it is worth, in our view a reading of the entire document. But if you see at the very bottom of the first page, the question it raises is this, about - the two line paragraph there. What did happen with the Australian labour market in 2001? That is the question it sets out to answer. And if I could move through the paper to page 3, and there is says - it discusses the seasonally adjusted series, where it says in the middle of the first paragraph:
PN1402
Seasonally adjusted series rarely shows smooth trend, so some volatility is to be expected but it is the extent of volatility which has been particularly marked over 2001.
PN1403
And the point it is trying to make is that there has been so much movement in the monthly data that it has been difficult to actually see the underlying pattern, and that the press comment, because it tends to be based on the most recent month, tends to focus on that particular month. So you get an upward movement one month, and a downward movement another month, and there is no sense of the over-all picture of the economy and of the labour force as it is unfolding.
PN1404
If I could then take to page 4 and the first full paragraph there. And here it is talking about the macro economy. And what it says is:
PN1405
There is no doubt that even prior to the terrorist attacks in the United States last September there was a good deal of uncertainty about the state of the macro economy. Forecasters found it difficult to model the likely impact of a number of extraordinary events during 2000, such as the introduction of the Goods and Service Tax, and associated changes in income tax schedules, and the Olympic Games. It was apparently unforeseen that the new tax arrangements would severely reduce demand for new housing, which precipitated the introduction of an enhanced first home owners grant scheme, which itself appears to have since had an over-corrected effect.
PN1406
And then it mentions at the bottom of the next paragraph, in discussing what the role of interest rates, it says:
PN1407
This increase in rates undoubtedly contributed to the slow down in economic activity which first became evidence in the September quarter of 2000.
PN1408
If I then go to page 5, and this when the paper starts discussing the labour market itself.
PN1409
At the top of page 5 you will see a chart and what the chart shows is GDP growth, and that is the broken line. That has been down but not extraordinarily down. There is then a lighter line, which is the employment line, that is the number of people who are employed. Then there is a line that crashes down into negative territory and that is the line for total hours worked. On page 5 they say the following:
PN1410
What is most revealing about figure 2 is the stability of the persons employed series relative to the variation in the two other series.
PN1411
Then, to skip a sentence:
PN1412
There is a strong hint here that a focus on persons employed has been obscuring something more fundamental in the performance of the Australian labour market.
PN1413
Then it says:
PN1414
We now examine working hours in more detail.
PN1415
If I could then turn to page 6, and there it reads on the second full paragraph - and it is talking about the year on year growth in employment by full-time, part-time and by sex, and that is the figure shown there. What it says is the following:
PN1416
In figure 3 we follow this convention and show growth and employment of full- and part-time work further subdivided by men and women. It is very clear from this that full-time employment growth began to slow in the second half of 2000 with net job shedding of full-time jobs for men beginning in the first quarter of 2001 and continuing throughout, though the rate of decline eased by the end of 2001.
PN1417
Growth in full-time jobs for women went below zero in the second half of 2001 and remained there. Part-time employment growth for women was lower than full-time employment growth until the middle of the year, after which it rose to around 4 per cent. Most remarkable of all, however, was a double-digit growth in part-time employment for men in the exact same period when net full-time jobs for men were disappearing.
PN1418
If I could then go over the page to table 2, and what we are looking at in table 2 is employment by full-time, part-time and by sex, December 2000 and December 2001, and it is particularly the last column which is relevant here. You will see that the first three rows are full-time. So it is male full-time, female full-time and all full-time. Then there is the part-time: male part-time, female part-time, all part-time, and then there is total employed. What it says in the first full paragraph in relation to that table is this:
PN1419
When we decompose employment change from the course of 2001 into these categories, we can see from table 2 that all of the gain, plus some, in employment was in part-time jobs. There were 135,100 additional part-time jobs and 59,700 fewer full-time jobs. The number of female full-time jobs fell by more than it did for males. As Borland, Gregory and Sheehan have documented, there has been almost no net growth in full-time jobs over the past decade.
PN1420
I end the quote there. On page 8 it goes into analysis of what are the particular changes that have happened and the kinds of conclusions one might lead to. It says, and this is the last sentence in the first paragraph there:
PN1421
As leave entitlements do not fluctuate from year to year, two possible explanations for the upturn in zero hours employment are that more people took more sick leave during 2001 than they did during 2000 or, as is more likely, there was a diminution in the demand for labour.
PN1422
In the next paragraph it says:
PN1423
The second main change in the composition of hours worked for both men and women occurred at the cusp of the part- and full-time threshold of 35 hours.
PN1424
What it concludes at the bottom of that paragraph is this:
PN1425
The data are at the minimum highly suggestive that a number of previously full-time workers saw their hours cut during 2001 and, as a result, were reclassified as part-time workers.
PN1426
Turning to page 9, and again at the very top of the page it states:
PN1427
Third, the number of people working long hours, that is, 49 hours per week, fell substantially for both men and women.
PN1428
Then at the beginning of the next paragraph it says:
PN1429
Across the economy as a whole, total hours worked declined in 2001 by 1.6 per cent. To put this into context, it was the first year on year decline in aggregate working hours for five years.
PN1430
Then, going to the end of that same para, it says:
PN1431
In fact, average hours worked per person employed declined by 2.7 per cent between the two years, from 34.6 to 33.6 hours per week. This is the most significant indicator of a dampening in demand. Average hours worked, spread over the course of the year, has never previously been below 35 hours per week.
PN1432
It then goes to discuss something called under-employment, and if we go to the last paragraph on page 9, it says the following:
PN1433
For measurement purposes, the under-employed are defined as those who usually work full-time but worked part-time hours or zero hours in the reference week because of economic reasons and those who usually work part-time and wanted to work more hours than they did in the reference week. On the basis of this definition, after declining since 1998, the number of under-employed persons rose dramatically in 2001. Over the whole year there were an average of 729,700 under-employed persons compared with 633,200 in the previous year, a jump of 15.2 per cent.
PN1434
Most notably, in August 2000, a landmark of sorts was realised, as, first for the first time since records have been kept, the number of under-employed persons exceeded the number of the unemployed. By November 2001, the latest month for which we have figures, there were over 200,000 more persons under-employed than were unemployed.
PN1435
It then turns to the question, as you can see in the heading on page 10, Which Type of Jobs Have Been Most Affected by the Downturn. On page 11 you find table 4, which is The Changes in Occupational Composition of Employment, 2000-2001, by Full-Time Persons. What you can see at the end there is that it has some kind of shift in - it shows the movement in full-time and the fall in part-time and then the total movement. What it says is this - and I am back on page 10 and it is the second paragraph down from that heading, [10.00am]
PN1436
And it says this:
PN1437
The most striking finding from table 4 is that there was a decline in the share of full-time jobs for seven of the nine major occupational groups, or correspondingly the same seven occupations saw a relative growth in part-time jobs.
PN1438
In other words, with the exception of managers and of associate professionals, most of the jobs lost and gained were a the broad intra occupational level. The two of course do not neatly cancel out, and it is evident that total job opportunities diminish substantially in three of the nine major occupations, namely, for tradespersons, intermediate clerical, sales and service workers, and labourers and related workers.
PN1439
And if you look at the table, you will see that the net movement, if you wanted an order, intermediates, clerical, sales and services have a minus 51 in the total figure, and for full-time minus 66. Then just behind that is the figure for labourers and related workers where the figure is minus 42 in total, and minus 52 across the full-time employment. And then in the third place is tradesmen and related workers, which for a total is minus 33, and in terms of full-time it was a minus .49.
PN1440
JUSTICE GIUDICE: What does the 33 signify?
PN1441
DR KATES: Pardon me?
PN1442
JUSTICE GIUDICE: What do the figures in the final column signify?
PN1443
DR KATES: I think that that was the change in the level of employment in total, so that you have in the first column the movement in full-time employment, the second column is the movement in part-time employment, and the final column is the net movement including both the full-time and the part-time movements.
PN1444
JUSTICE GIUDICE: Yes, but what is that figure? Is it - - -
PN1445
DR KATES: It is a percentage. It is a percentage of actual change - - -
PN1446
JUSTICE GIUDICE: Is it .33 of 1 per cent?
PN1447
DR KATES: Yes, that is right, yes. I mean, in most years you would expect it to be positive, but in this case it is negative.
PN1448
JUSTICE GIUDICE: Yes.
PN1449
DR KATES: And what it is showing is the relative movements, where you have actually found the greatest - the greatest fall.
PN1450
JUSTICE GIUDICE: What does that table tell us about the absolute numbers of persons employed?
PN1451
DR KATES: The table deals only in percentages, so that you would have to get the underlying figures to see what had happened to the levels, numbers. But it tells you the percentages for each of those.
PN1452
JUSTICE GIUDICE: Yes.
PN1453
DR KATES: So that - - -
PN1454
JUSTICE GIUDICE: It is a relative measure.
PN1455
DR KATES: Yes, it is, yes.
PN1456
JUSTICE GIUDICE: Yes.
PN1457
DR KATES: And the conclusion it reaches on page 12 is that:
PN1458
It is most likely a cyclical phenomenon prompted by the general slow-down in the economic growth in the second half of 2000.
PN1459
But what we note here is that where the particular damage was done to employment, where jobs were being lost, tended to be in areas where we would in some rough way associate with increases granted through safety nets and other areas in which you do not have the same degree of bargaining and ability to enhance productivity growth by a workplace agreement. Then quickly move through the data under the five years of the Workplace Relations Act and it compares with the Accord.
PN1460
And the interesting thing here, and what is being argued, is that the difference between the first five years under the Accord and the first five years under the safety net is that, during those first five years under the Accord, real wages fell. Whereas during the first five years of the safety net, which is the comparison they are making, real wages have continued to rise. And if I could just go to the bottom of page 12, it says:
PN1461
After initially dipping, then rising quickly, real average wages fell from September 1984 such that by the end of the five-year period under consideration they were below the level they had been in March 1983. By contrast, real average wages have risen more or less steadily except an immediate aftermath of the introduction of the goods and services tax under the Workplace Relations Act in total by around 10 per cent over the full five years.
PN1462
On page 14 - - -
PN1463
JUSTICE GIUDICE: Is that good or bad?
PN1464
DR KATES: Pardon?
PN1465
JUSTICE GIUDICE: Is that good or bad?
PN1466
DR KATES: Well, I would say that if an economy could sustain it, I would rather see real wages rise. And if we were thinking about the period 1983 to 1988, which were the first five years of the Accord, those were years which followed the wage explosion in Australia and the most certain necessity was that real wages should fall. There had been, prior to that, a wages pause. I am sure you will all recall that; there was a wages pause, which was then followed by a period of full indexation which took real wages in Australia to the highest level they had ever reached to that stage. And that so caused the economy to stop dead, that real wages began to fall from that moment on.
PN1467
JUSTICE GIUDICE: Yes. I am not - my question was probably too cryptic by a long way, but I was really trying to get at what the significance of this comparison is for us.
PN1468
DR KATES: Well, I - - -
PN1469
JUSTICE GIUDICE: What bearing does it have on our task?
PN1470
DR KATES: I am not so much interested in the comparison myself, but I think the observations he makes about the safety net period are interesting and particularly as he noted there that during the safety net period we had an increase in real wages, on his calculation, of 10 per cent. So that whatever conclusions you might want to draw from that are there to be drawn. I think the conclusion he is drawing, or these two authors are drawing, is that the employment outcome compares between the two periods, is that we have seen a rise in real wages, and the worst performance in employment, whereas during those first five years of the Accord we had a fall in real wages and a better outcome for employment.
PN1471
COMMISSIONER LEWIN: The authors seem to suggest that there may be some merit in the final paragraph of their conclusion at page 17.
PN1472
DR KATES: Yes, I was going to come to that, and I agree there is certainly - and I could deal with that, if it is all right, Commissioner, when I get there.
PN1473
COMMISSIONER LEWIN: In due course, yes.
PN1474
DR KATES: Then it says again on page 14 real labour costs fell dramatically under the first five years but it did not under the Workplace Relations Act. It stated that, at the bottom of page 14:
PN1475
Under the first years of the Accord the minimum wage fell relative to mean earnings. There has been no such fall under the Workplace Relations Act.
PN1476
Which we interpret to mean that the safety net review is a more effective vehicle for preserving living standards at the bottom of the earnings distribution than were national wage cases. So that contrary to what the ACTU asserts, we do have a preservation of real wages in Australia. I will just go to the conclusion then, and - - -
PN1477
SENIOR DEPUTY PRESIDENT WATSON: Do you accept the proposition on page 15 that there has been a widening inequality of earnings under the Accord - under the Workplace Relations Act than under the transition period of enterprise bargaining? The final paragraph on page 15.
PN1478
DR KATES: Yes, I see that. It is interesting that the ABS has today or yesterday released a new study which showed that there has not been an increase in inequality in Australia during the last 10 years. I am not sure that these people are actually demonstrating it; they are more or less just assuming it rather than the data showing that. The point it is making is that if you are dealing with the - well, the point it is making is that the approach as suggested by the five economists, which is one that we have not - we have looked at but have not come to a conclusion on ourselves, and what it is saying is that the conclusion they come to is that an incomes policy on top of a decentralised and unco-ordinated bargaining system would not work, and the two are unco-ordinated.
PN1479
The data it has in terms of the changing income distribution, if we were to note that, in terms of the Accord and non-Accord, that if you look at table 6 you will see that full-time earnings relativities went from 74.8 in 1983 to 68.9 at 1996. So if there has actually been a fall or a wider distribution in earnings that has taken place, it happened during the period of the Accord, that it has not been a particular feature of the most recent period, but is one certainly that it seems to have taken place during the period 1983 to 1996.
PN1480
COMMISSIONER LEWIN: Are you leaving page 15?
PN1481
DR KATES: 15.
PN1482
COMMISSIONER LEWIN: Are you beyond page 15 now?
PN1483
DR KATES: Well, I was, yes, Commissioner.
PN1484
COMMISSIONER LEWIN: Do you adopt what is said in this article about productivity, at the bottom of the page?
PN1485
DR KATES: Where is that, Commissioner?
PN1486
COMMISSIONER LEWIN: At the bottom of page 15, starting with the sentence:
PN1487
Workers at the bottom end of the earnings distribution.
PN1488
DR KATES: Well, I - my own - our own assessment of this is that the way that these data work out is that they have contributed in the say we describe the spurious productivity, so that they have contributed by working fewer hours.
PN1489
COMMISSIONER LEWIN: So you qualify that?
PN1490
DR KATES: Yes, I do, yes. Anyway, I just note the conclusion there and this is on page 16, which discusses the net decline of full-time jobs for both men and women over the course of years, a fall in the hours worked principally driven by a 2.7 cut in average hours worked, which fell below 35 hours for the first time ever, and a dramatic rise of 15.2 per cent in the number of under-employed persons, with the result, for the first time since records began, that the level exceeded the number that were wholly unemployed.
PN1491
And I would end our discussion there. But Commissioner Lewin asked - - -
PN1492
COMMISSIONER LEWIN: It was just the last paragraph on page 17. It seems to come to the point of your category of spurious productivity.
PN1493
DR KATES: Yes, that is right, I agree. Yes, this is - it is rising GDP per capita while working fewer hours. That is right. That is actually a problem, as we see it.
PN1494
COMMISSIONER LEWIN: These authors tend to suggest that it is a market outcome.
PN1495
DR KATES: As I read the paragraph, Commissioner, what I thought it said was that it is better that we have an alternative in part-time work, so that if the labour market in total is contracting, that there is this alternative of part-time work that people can go to. Because in previous less flexible markets, what you would find was that as the ability to employ workers diminished, you either had a kind of yes/no, you either kept someone on or you had to let them go - - -
PN1496
COMMISSIONER LEWIN: And very long dole queues.
PN1497
DR KATES: Pardon me?
PN1498
COMMISSIONER LEWIN: You had very long dole queues.
PN1499
DR KATES: Very long?
PN1500
COMMISSIONER LEWIN: You had very long dole queues.
PN1501
DR KATES: Yes, that is right. That is exactly right. And - - -
PN1502
COMMISSIONER LEWIN: And what the authors are saying is that available work is distributed in more flexible labour market more equitably than that.
PN1503
DR KATES: Yes, it is. And certainly we think that is one of the true advantages of having more flexibility, that when the labour market does contract, that there are alternatives that individuals can go to, even if they cannot get the full income that they want and they end up under-employed, at least they are employed and they have - and they are able to earn incomes during that period.
[10.15am]
PN1504
If I could, I would now return to our submission. Yesterday we were discussing the level of employment and we were looking at table 11 on the movements of total employment, and we noted that the growth rate of 1.4 per cent had been an improvement over the previous period but certainly not anywhere near the longer term average that you can see across the table. If we then turn to table 12, which is on the unemployment trend, and if I could just note the chart there. This is one of the few charts where, when the number goes up, it actually makes things worse and when it is above the line - whenever it is above that thick, black line - that means that unemployment is rising.
PN1505
So that you can see on the left side the huge increases in unemployment during the period 1989 to 1992. What you now find is that we have only just, in the last quarter and perhaps two but really only the last quarter, finally entered the zone in which the total level of unemployment is falling. So that our wish and what we are seeking is an outcome that will ensure that that number gets below the unemployment line and stays below. There ought to be a continuous fall in the number of unemployed.
PN1506
Table 13 shows the unemployment rate. Again, this is similar to the table that was in the ACTU exhibit but the chart shows the upturn and then the quasi beginning of a downturn in the number and in the rate of unemployment. The rate there shows that at March quarter it was 6.8 per cent and this is well up on the 6.1 per cent rate that it had fallen to back in September 2000 and I find it - sort of the irony of it that at that stage we were wondering whether the unemployment would fall below 6. Then for while, more recently, we were wondering whether it would rise above 7, which is did do in seasonally adjusted terms but you can see that there is certainly a deterioration in the rate of unemployment.
PN1507
If we could then turn to table 14, which is the data on full-time employment. The point we tried to make is that full-time employment has been in large decline, that between September 2000 and September 2001, there was a fall of 1.4 per cent across those four quarters. Since then there has been something of an improvement, so that it rose by .4 in the December quarter and by .3 in the March quarter but, even so, the level of full-time employment remains lower than it had been one year ago. We would note that, looking across the full scope of the nine years represented on this table, the average annual growth in full-time employment is 1.5 per cent and that is across the full scope of the years from 1993 right to 2002.
PN1508
So in good years and bad, the average has been the 1.5 per cent and the current growth rate is actually negative and that is 0.4 per cent, but we are hopeful that it will improve. Table 15 shows the data on part-time employment and this is, as noted by the National Institute paper, this is where we have found employment growth to be happening, that part-time employment has been strong across all the years of the table, good years and bad. The average is 4.2 per cent per year. The most recent year, as you can see, to March 2002, has been 6.4 per cent. So that while we have lower than average, lower than trend growth in full-time employment, we have had faster than trend growth in part-time employment and it is, we note, a good thing that there is this alternative.
PN1509
Table 16 deals with the Consumer Price Index and I think there is only one number on all of those numbers there that really is relevant and that is the one at the bottom right-hand corner, and it is a 3.1 per cent figure there. The Reserve Bank's target of 2 to 3 per cent over the course of a cycle has now been breached. The hope is that RBA is right and that the movement in the CPI when the March quarter figures come out later this month is that it has come in below the 3 per cent figure that is their target and is their upper limit.
PN1510
But the certainty is that the RBA will act to raise the rates if that number does not come in below its target range and, in fact, I think they will be acting anyway, but the kind of force that they may use will be entirely different if we end up with a lower outcome than a higher one. We do note that the a higher wage outcome in the safety net case will not cause the Consumer Price Index to go over 3.1 per cent but it will edge the economy towards that rate. It is not the full story, by no means anything like the full story, but what it is is one of those additional factors that will build into the price level inevitably and help push us over the 3 per cent target limit, upper limit of the RBA, and with all of the social and economic harm that it will do.
PN1511
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, do you have any observation on the Commonwealth's submission at paragraphs 2.53 and 54 of its primary submission, which refers to some one-off or temporary factors and the 2002/3 headline CPI being forecast to increase by 2 1/2 per cent in year average terms, to use the terms of the Commonwealth, "comfortably within the Reserve Bank's medium term inflation band"?
PN1512
DR KATES: Yes. Well, as I say, we hope that that is true but the CPI is an average of hundreds, if not thousands, of prices. They just group them into various components and in any particular time there will always be some outlier both upwards or downwards. So to say that the movement in the CPI has been a product of this particular high number and that particular high number is one that I don't think we tend to agree with, that the proper way, in our view, to assess the CPI is just to look at the number as a whole, that it just grows by whatever average it happens to grow at and to pick on something as the particularly large element and that was the one that made the difference.
PN1513
What, actually, I think disappointed us most about the December quarter CPI is that we expected it to be a good deal lower than it was ourselves because petrol prices, for a change, were beginning to help us out and that the higher rates of growth in the CPI over earlier periods were to a large extent explicable and explainable by the movements in the cost of petrol because of the higher crude oil prices around the world. But when crude oil prices fell and, therefore, petrol prices fell in Australia, our expectation was that the CPI should come a lot lower than the 3.1 per cent it did.
PN1514
It caught not just us but, I think, many others, including the RBA, in something of a surprise to see the number as high as it was. So that you can say, on the one hand, sure, that tourist accommodation, I think it was, went up by some large amount and that was an important contributing factor, or the price of airline tickets went up because of the collapse of Ansett and that was an extraordinary factor. That is true. But in the in the other direction there was the extraordinary factor of the low rate of growth, not even negative - I don't recall at this stage - but the low rate of growth in petrol prices, and all of it gets put into a single brew mixed together in the way the ABS does it and you end up with a number at the end of the day.
PN1515
That number is the one that the Reserve Bank says it focuses on and the number it has chosen as the upper limit of its tolerance is 3 per cent. So that yes, it is true that we have had some individual factors that you could point to as the reason it went up but there are other factors that you say why it didn't go up as much as it might have.
PN1516
COMMISSIONER LEWIN: So are you quarrelling with the 2 1/2 per cent estimate?
PN1517
DR KATES: I would just say that with the 3.1 per cent having been published for December, that our worry is that the number may end up larger. The March quarter for last year was 1.1 per cent. So that if the number comes in for March quarter this year, from quarterly numbers, less than 1.1 per cent, then the year average will fall. Because 1.1, all other things being equal, was a higher figure than you normally expect for a quarter, there is good reason to think that the number will fall below the 3 per cent but one cannot be certain.
PN1518
And the very fact that it was .9 per cent in a quarter which was generally benign, in which you wouldn't have been able to point to anything in particular, which is the case in the December quarter, just adds an additional level of concern to what might happen when the CPI is finally released at the end of the month. I think forecasts are forecasts, that there is a margin of error in them and it wouldn't take an awful lot for that figure to be again 1.1 per cent. Who knows what your extraordinaries are during the March quarter?
PN1519
If I could turn then to full-time, adult ordinary time earnings in table 17, I think that what is quite interesting is the zigzag pattern that you see on the chart underlying around and bordering around the trend. This is a very volatile series. The trend growth, however, is 5.9 per cent for full-time, adult ordinary time earnings across the economy and for the private sector, which isn't shown on the table, the growth rate in full-time, ordinary time earnings was 6.3 per cent, the growth rate in the year to November 2001.
PN1520
Now, everybody, and including us, I think, criticises these figures for being unreliable. They have enormous compositional and distributional effects and the way they are calculated is you just take total wages and you add them all up and ordinary time hours taken during - so you total up all the wages earned and you divide it by the number of people that earned those wages during those ordinary time hours and you end up with a figure of the average wage, which is shown in the first column, and the growth between periods is shown in the third column.
PN1521
Compositional effects play havoc with these numbers and, in fact, that is one of the reasons that when the ACTU chooses these numbers as something - as a comparison for what has happened in this series relative to what has happened to award minima that it is immensely an incorrect comparison. You just simply cannot use these numbers in that way.
[10.30am]
PN1522
But what is interesting to contemplate, and I think this is part of what is important to understand about this, is that to get a number like this to rise out of the compositional effect, something has happened, in particular to those persons employed at lower wages. Or that is one of the possibilities. That if you want - if, as we will come to - the wage cost index, which is the kind of flat estimate as 3.7 per cent, but the movement in ordinary time earnings is 5.9 per cent, and 6.3 per cent in the private sector, what can happen is that a larger proportion of people on lower levels of wage have been removed from the labour market.
PN1523
Either, they have lost their jobs entirely, or they have moved across as the newspapers have suggested, from the category of full-time into the category of part-time, and are no longer in this series. So that you can get a rise in this indicator, simply because there are proportionally fewer people who employed at the lower levels of the income distribution. And in fact, that that table in the NILS which indicated that tradesmen and salespersons and labourers, related workers, were the ones who are proportionally larger exits from the labour market, that is consistent with the rise in this indicator.
PN1524
So that while it doesn't tell you necessarily what the actual movement in wages was, it does tell you something about - it actually alerts you to the fact that something was going on in compositional terms and you end up with this outcome because there are proportion of fewer people at the bottom of the base skill. If I could then go to table 18, table 18 shows the real full-time average ordinary time earnings. And what that does, it takes the data in the previous table and it calculates the growth in real earnings across the period, and the movement in real earnings has been significant and in terms of this particular indicator, which may be completely bogus, the increase across the last year has been 2.6 per cent.
PN1525
If we could then turn to table 19, which is the wage cost index, this is a much more benign looking set of figures in terms of what has been happening to earnings in Australia. This is a fixed cost index and that way it is done in the same way as the CPI, so that the improvement - the movement in wages is built into a structure, so that compositional changes do not affect the outcome. So that it is certainly an improvement in our understanding of what is going on in the labour market relative - when we were completely dependent on the average weekly ordinary time earnings series.
PN1526
Now what has actually been quite interesting to us is how little variation there is in terms of the annual movements. It has, in the private sector, had a low of 2.8 per cent across the earner high of 4.7 per cent. The current movement in the hourly rates of pay in the private sector has been 3.4 per cent, and also across the entire economy it has been 3.4 per cent. The data in table 20 show the real wage cost index, which is the previous table adjusted for movements in the price level, and what we find here is that while there is some various ups and downs, since the index commenced, which was the first quarter we have data for September 1997, the index tells you that over that period that real level of earnings has risen by 3.9 per cent in the private sector, and by 4.2 per cent across the entire period in the total economy.
PN1527
Table 21 now takes us into, I think, the beginning of a series, the important matter about what is happening in the Australian economy. What we have here are the figures of GDP in the market sector, and in brief, the market sector are those parts of the economy whose growth rates can be measured through value added. So that typically the public sector is excluded, but also certain parts of the private sector are excluded, such as property and business services, and personal and other services.
PN1528
So that where you cannot measure value added directly, through sales to the market, the methodology is just simply to estimate the growth in terms of the number of persons employed. In this case, what we have here are the data on the market sector alone. And it tells something of a different kind of story about what has happened in the Australian economy. It leaves out things such as whatever growth rate has been driven by our commitment in East Timor, other public sector non-marketable goods. It also, because it leaves out personal services and property and business services, maybe leaving out something that would be there in terms of the growth rate in the economy because of the housing sector.
PN1529
So that it is one way a more accurate measure, because it is based on what really did happen in the economy, but it is unfortunate that certain parts of the economy cannot be measured, and you are pushed to using a narrower base for measuring what has happened in the market.
PN1530
JUSTICE GIUDICE: Dr Kates, the charts on the right hand side of table 21 are referrable to table 22, I think, aren't they?
PN1531
DR KATES: You are right, your Honour, I am sorry about that.
PN1532
JUSTICE GIUDICE: And the chart opposite - - -
PN1533
DR KATES: And then they are reversed on the other side as well.
PN1534
JUSTICE GIUDICE: Yes, they have been transposed.
PN1535
DR KATES: Yes. Yes, exactly. I am sorry, I apologise for that. I am sort of a numbers person, myself, and charts are one of those things I leave.
PN1536
JUSTICE GIUDICE: The world can be divided into two classes apparently.
PN1537
DR KATES: Pardon?
PN1538
JUSTICE GIUDICE: The world can be divided into two classes, numbers people and charts people.
PN1539
DR KATES: That is correct, and in fact Cartesian co-ordinates, I am a Cartesian type, you know. Cartesians are the ones who like graphs and Newtonians are the ones who like numbers. I'm on the numbers side. But I have both - we suit all tastes. But if I could go to table 22, whose charts are on the back of that page. This is the data on GDP per hour worked in the market sector. And this is the ABS measure of productivity. It is how much output did we get across the market sector relative to how many hours worked to produce that output.
PN1540
Now, the first set of numbers in the table we have seen - in the previous table, we have seen those already in table 21. The second column is hours worked and it's calculated as an index. The third column is GDP per hour worked. I would note that all three sets of data are produced by the ABS, we have done no calculation at all in this table. These are simply just straight copies of what the ABS has itself produced.
PN1541
The important aspect here is what we find in that second column, which is hours worked. And this is something that the newspaper has highlighted and that we think cannot be emphasised enough. Now, what you find there is that employment in terms of hours worked, is contracting. It is not that it had contracted and is starting to turn around. That in terms of the most recent number for which we have data, the number is actually falling.
PN1542
So that at June 2000, the index level was 101.0 and at December 2001, in trend terms, this number had fallen to 98.7. So that what we have had is a fall in hours worked in the market sector of 2.3 per cent across the period from its peak level in June 2000, to the most recent number we have data for, which is December 2001. And given that the fall has been 2.3 per cent, it would require a growth rate in hours worked of 2.3 per cent to get us back to just where we had already been in June 2000.
PN1543
Now it is not that it is impossible to do that. Other years you can see, have had those kinds of growth. There have been other years in which hours growth of that kind has been possible. Not fully, but it has occurred. In this case, what we are saying is that it is going to take an awful long time, a very patient nurturing of the economy, to get the hours rate back up to the index of 101.0, which is what we have already experienced in the June quarter of 2000.
PN1544
Going then to the figures on GDP per hour worked, which is the productivity estimate for the market sector, we have had a growth as we noted in the previous table, of 2.9 per cent across the last year. The 4.3 per cent growth in GDP for hours worked is therefore that 2.9 per cent mixed with a fall in hours worked during the last year of 1.3 per cent. We have had the growth in productivity which so many people take lots - take comfort in, in many respects, based on people being forced out of the labour market. People - we are getting productivity because fewer people are being employed.
PN1545
And I think that the term we have used for that, that spurious productivity, is relevant. It is not a genuine distributable number. You could not imagine every thinking that because the growth in productivity was 4.3 per cent, that we could, because of that, afford higher labour costs. It would be exactly the opposite conclusion that we would think you should come to because, in our submission, it is a growth rate that is actually built on falling levels of employment. If the actual aim of the policy is what we think it ought be, and that is to get that hours worked column moving upwards, then using this productivity number as a basis for increasing the cost of labour would, in our submission, be inappropriate.
PN1546
To come to the end of the discussion, and I think that we would just make a few observations on what the data has shown.
[10.45am]
PN1547
SENIOR DEPUTY PRESIDENT WATSON: Just before you do, Dr Kates, there is data there for real wage cost indexes in productivity. Has the method that has previously been - I am not sure how far back - relied on real unit labour cost fashionable now?
PN1548
DR KATES: Well, we on this side of the bar table, have never used real unit labour costs. It has been a measure we think is corrupted because of the compositional shifts in economy. So you have a particular structured economy and a particular structure of labour cost that was built an average weekly ordinary time earnings. There are so many structural shifts that go across - that occur across time that what was an appropriate level of real unit labour costs at one particular point in time is simply no - provides you with no information about what that number ought to be at the present.
PN1549
So that if you want to look at it in a kind of local one year to the next, that may have some relevance. But the way it has typically been used is to say that back in 1991 and 1985 the real unit labour cost index was 100 and therefore because the index is now 106 we have to get back to figure of 100. We think that is entirely inappropriate and our view has always been to ignore it, and while others have used it, it has been one that we do not use because we think it is inaccurate.
PN1550
SENIOR DEPUTY PRESIDENT WATSON: Yes, very well.
PN1551
DR KATES: Anyway just some observations on what the data say to us. The first thing is that there is still an international slow down in place. So that we are hardly in a position to say that everything is just on a straight run to certain growth. We all have great expectations for the future but the aim is to realise that future. It has not happened yet, and the kind of decisions that are made both here and within the Reserve Bank do have an affect on those outcomes. Even here in Australia, as good as our growth has been, what we are achieving is retracing our steps back towards level of production, investment, and employment we have already been able to sustain.
PN1552
Beyond that there is the likelihood that interest rates are going to rise. Some people think a year from now the rate will be more than a percentage point higher. We note that the TPI of 3.1 per cent which we hope and partially expect to fall below that 3.1, but nevertheless 3.1 was a dangerous signal for interest rates and therefore future economic growth. And finally we note that six months of reasonable economic growth does not a recovery make.
PN1553
The data we have presented should make it clear that there is still a long way to go and that the wage outcome from this case should be consistent with maintaining economic growth, improving investment, and achieving much more rapid rates of growth in the labour market.
PN1554
COMMISSIONER LEWIN: Are we looking at five minutes of economic sunshine?
PN1555
DR KATES: Well, I hope not but you never know. But those who make decisions, and particularly the government and the Reserve Bank, I think are being reminded by the government that it does have an enormous impact on the economy and the Commonwealth later on continued to tell that story about the impact that the safety net has on the economy. And I think that what we are trying to avoid is that five minutes and try to get it to at least an hour or so.
PN1556
I would now like to turn to discuss our survey on the safety net. It has been, over the years, a consistent refrain of the ACTU that increases granted as part of the safety net cost no one their jobs and do not flow on from those paid the minimum award rate either into the over-awards or into the non-award system. For example, in its written submission in this case the ACTU stated on page 105:
PN1557
There is simply no evidence that recent safety net increases have had any adverse impact on employment.
PN1558
It has also been the assumption that the increases do not flow into other earnings, which is why it attempts to isolate those increases granted through these proceedings from the increases received in all other sectors of the economy, as if there is this award adjustment over here and everything else happens independently. As part of our regular survey of the business community, ACCI attached as part of its survey at the Public Investor Conference in September 2001 a series of questions dealing with the safety net. And if I might I would like now to tender an exhibit dealing with the safety net.
PN1559
JUSTICE GIUDICE: I wonder if you could identify precisely what this document is, Dr Kates, before we mark it.
PN1560
DR KATES: Yes, thank you, your Honour, yes. It is actually a compilation of a number of exhibits that have been attached to other parts of our submissions that we have already tendered.
PN1561
JUSTICE GIUDICE: This is just for ease of reference to these materials, is it?
PN1562
PN1563
DR KATES: What we have here are first the questionnaire and then the results of the questionnaire as we have compiled it. And what we have attempted to do in this questionnaire is to find out from business what they actually experienced in terms of granting of the claim, flowing it on to other employees, and then what effect has been on their level of employment. And the first page is from our reply submission, and it is from a series of data that we sent to the ACTU upon their request in terms of what was the covering page of the questionnaire. And the covering page is identical in each quarter that we send it out. And the only time it varies and the only place it varies is if there is a supplementary question attached. Then we note on that covering page that there is a supplementary question. And here you will see on the fifth paragraph down it says that:
PN1564
Most importantly in this survey are the supplementary questions on the effect that safety net increases have had on your business. The answers to these questions will be used during the safety net hearing next February. Please answer these questions as accurately as possible.
PN1565
What we were trying to say here is that there is a set of data we are looking for that we need to represent business, and what we are looking for is accurate data on what really happened. We emphasise the need for accuracy. If I could then turn to the next page, this is from tag 5 of our original written submission, and what you will see at the top is that it says that the questionnaire is presented by the Pharmacy Guild of Australia and the Australian Chamber of Commerce and Industry.
PN1566
What we do is distribute the questionnaire to our members and whom there are 40 business associations, and we ask them to distribute it to their members. Our membership is the most represented within Australia. It covers all industries including the farm sector but not as deeply other sectors, and each of those categories we do have membership which cover those areas which you can see in the list of industries stated on that covering page.
PN1567
What I also would like to draw the Commission's attention to is the first statement of the paragraph that we send out at the very top of the first page of the questionnaire. And the first sentence reads:
PN1568
Most respondents to this survey should by now be familiar with its format.
PN1569
The point about that is that this is not a survey that goes out just because we are interested in the safety net so that people with pick and choose whether they want to answer this questionnaire or not, and say, am I interested in this questionnaire, no, yes. What this shows is that we have a reasonably solid base of businesses who answer the questionnaire, quarter after quarter, irrespective of what happens to be a set of supplementary questions at the end.
PN1570
So that in terms of the issue of buyers that the ACTU has spoken of, there is not that kind of bias in it. People were not choosing to do this questionnaire because there was a safety net series of questions attached. People chose to answer this questionnaire because that is what these firms do. They regularly answer the questionnaire. As you will see the questionnaire just has a series of standard questions on the economy.
[10.57am]
PN1571
And if you go through it from pages - well, 232 to 237, these are the kinds of questions that form the basis of our survey of investor confidence. This is - it is the data from this survey that forms part of what ends up being our business barometer. The figures here pick the downturn that occurred from some time towards the end of 1999 and 2000. I might add that we were saying there was a downturn while the Reserve Bank said everything was going great, which is - these surveys do accurately portray movements in the economy. The fact that the ACTU yesterday chose to quote our ACCI Westpac survey, it says, well, we just do that, we do not rely on it and we do not believe them.
PN1572
But in fact what it said was exactly what they are saying themselves. The economy is picking up. Things are better than they were. Business is relieved that rather than the recession we thought we might have, looking back a year ago, we have actually ended up with a far more solidly based economy. It is not run-away economy but it is certainly a solidly based economy and one which gives us a much better platform than any other OECD economy for ongoing and continuous growth. But the point about that is that the survey is accurate. It tells us something profoundly true about the state of the Australian economy.
PN1573
If I could then turn to the actual questionnaire on the safety net, which comes at the very end and it is marked at page 238. This is what, at the end of having completed the rest of the questionnaire, a respondent would come to. And it would be - it would just simply say safety net. There is nothing in the questionnaire that leads anyone into any set of answers. It just simply says we want accurate information. And the first paragraph there says this is what happened in the safety net in May 2001. And it just states what happened, the increases which were granted to people at different rates of pay.
PN1574
It then says, and this is the second paragraph, and I quote:
PN1575
In answering these questions, it is important to be able to distinguish increases granted as a result of the safety net decision from increases granted for other reasons. Please therefore answer the questions as carefully as possible.
PN1576
We made it as clear as we possibly could that we wanted those who were answering the questions to think very carefully and think very clearly about why they had granted an increase when they had. And the point we were trying to get at was did an increase come as a result of the safety net, yes or no? Think about it. If it did, then answer yes; if it did not, then answer no. But what we were really concerned to emphasise in presenting this questionnaire to our members was that accuracy was the most important quality we had in mind.
PN1577
It was an accurate outcome we wanted. And in our view that is precisely what we have, because when you look at the data itself there is an integrity within the data set that simply declares that the figures that we are looking at are a true reflection of what goes on in a kind of subterranean way in the labour market and in businesses across Australia.
PN1578
COMMISSIONER LEWIN: Do you set out some of the methodological bases of the survey, such as sample size, how many members you have, how many it went to, your response rate, those sorts of things, are they actually set out in one of the tags?
PN1579
DR KATES: Yes, the ACTU was quite right to note that we had not originally put those data in the - - -
PN1580
COMMISSIONER LEWIN: In the reply.
PN1581
DR KATES: That is right. So that we have included - we sent the data to the ACTU and you will find those in the reply submission. Now, the first question then asks about whether they - - -
PN1582
JUSTICE GIUDICE: Dr Kates, before you go to the survey in detail, I think we will break for about 10 minutes.
SHORT ADJOURNMENT [11.03am]
[11.14am]
PN1583
JUSTICE GIUDICE: Mr Murdoch.
PN1584
MR MURDOCH: If the Commission pleases, for the record the further information that was sought by way of the modelling exercise has been supplied by Ruth Gabbitas and that has been handed to my friend, Mr Watson.
PN1585
JUSTICE GIUDICE: Thank you.
PN1586
MR MURDOCH: My friend requests that it be tendered. We are happy to do that. I have one of the original copies signed by Ms Gabbitas. I can supply that copy. I do not currently have copies to distribute to the other members.
PN1587
JUSTICE GIUDICE: Yes, well, it would be desirable to hand up that copy and at a convenient adjournment perhaps we can make it available to you and get some copies done.
PN1588
PN1589
JUSTICE GIUDICE: Yes, Dr Kates.
PN1590
DR KATES: Thank you, your Honour. We were in the process of discussing the survey that we had done on the safety net that was conducted as part of the survey of investor confidence during September of 2001. And we were looking at the actual questions in the questionnaire which came at the very end of the questionnaire form. And we note that the first question there, number 2, asked:
PN1591
Did any of your employees receive an increase in wages directly because of the safety net decision.
PN1592
And what is important is that the word "directly" is there and was emphasised. So that those who are answering the questions understood that what was being sought was an indication whether because of the decision of the safety net employees within their own businesses receive an increase. And therefore that there was no judgment involved or decision-making of any kind involved, but it simply was a matter of obeying what the terms and conditions of employment were in terms of the award.
PN1593
We then go to question 2, and question 2 asks about what happened in terms of over-award employees. And the question reads as follows:
PN1594
According to the safety net decision the increases granted were to be absorbed into over-award payments. Did you nevertheless raise the wages of any employees receiving over-award payments because of the increase granted. Even though you were not compelled to do so by the decision.
PN1595
It was made in the question that it was only employees who were not entitled to receive an increase that should be included as employees who had received an increase because even though they were on the over-award. The third question asked about non-award employees, and it said:
PN1596
Did you raise the wages of any non-award employees because of the increases granted to award employees in the safety net decision?
PN1597
So again we were asking about what was the flow-on to non-award employees. And you will see again here that the questions were increased wages of non-award employees because of safety net decision did not increase wages of non-award employees because of safety net decision. It was crystal clear in our view just what it was that we were seeking in answer to that question. We then in question 4 turn to the issue of employment, and the question reads:
PN1598
Did the increases in the safety net have any effect on the level of employment in your firm?
PN1599
And there are three alternatives presented in answering that question, and they are all the three possibilities that might have happened in terms of employment. They are firstly the number of employees was higher than it would otherwise would have been, and secondly, there was no effect on employment, or thirdly, the number of employees was lower than otherwise would have been. And the words "higher", "no effect" and "lower" were all emphasised so that there would be no mistaking where to mark any particular answer. We then ask what full time employment, and we ask:
PN1600
Did the increases in the safety net have any effect on the level of full time employment in your own firm?
PN1601
And again it was in their own firm and it was on full time employment. And the same three options were provided in terms of answers. And finally we ask in terms of what was the effect on the decision to employ full time and switch to part time, and what we asked there was question 6:
PN1602
As a result of the safety net decision did you reduce a number of full time employees and increase a number of part time employees?
PN1603
And the choice there was yes or no. I think these were straightforward questions and I think that there would be little doubt on the part of our respondents, either in terms of what was intended in terms of what the question asked, and that the emphasis was placed on accuracy in getting the right answer. They were looking to know what had happened in the labour market in Australia.
PN1604
VICE PRESIDENT ROSS: Dr Kates, can I just ask you about the first question that you referred to, and that was, I think, as a direct result of the safety net decision did any of your employees receive an increase in wages. That question, as I understood, was intended to illicit a positive response from those who had a legal obligation to pay. So their employees were, in effect, award reliant. Is that correct?
PN1605
DR KATES: That would be correct, yes.
PN1606
VICE PRESIDENT ROSS: I am having difficulty reconciling the results on that answer, which I think - well, page 239 I think it is marked in that exhibit - where some 42.2 per cent, those are the weighted full survey result; is that of the employers who responded?
PN1607
DR KATES: Yes.
PN1608
VICE PRESIDENT ROSS: Okay. Well, maybe that is the answer, because in the Commonwealth's material, appendix A1 I think it is, developments in the wages system, they say at the second paragraph that the employee earnings and hours survey shows that award reliance has declined from 67.6 per cent, roughly two-thirds in May 1990, to 23.2 per cent in May 2000. I suppose if we assume there is some sort of linear relationship with time that it might even be lower than 23.2 per cent now, but that would suggest that in terms of employees the number would be less than the 42.2 per cent in your answer.
PN1609
DR KATES: Yes, I think it would apply that, yes.
PN1610
VICE PRESIDENT ROSS: So is that the reason for the disparity, that it may suggest that the survey is either more heavily weighted to the award reliance sector or that the 42.2 per cent of the employer respondents are perhaps in smaller enterprises, hence say it might translate to a lower percentage of the employees employed by all the employers in your survey.
PN1611
DR KATES: Yes, I do not think it is the size of the firm that actually makes the difference, as we will note later.
PN1612
VICE PRESIDENT ROSS: Okay.
PN1613
DR KATES: But I do agree that the proportions here are in terms of firms and not in terms of employees.
PN1614
VICE PRESIDENT ROSS: Yes, and as Senior Deputy President Watson has just pointed out to me that the question is, "did any of your employees." So, in fact, if one did then you would get a positive response. And there no doubt would be instances where part of a workforce would be award dependent and another part would not.
PN1615
DR KATES: That is right.
PN1616
VICE PRESIDENT ROSS: Yes, I see.
PN1617
DR KATES: That is correct and it looks impossible. However, in this case we do know a number which is the 23.8. So that it is the fact that we would know that a larger proportion of firms may have employees who are paid according to the award and yet in terms of the number of employees themselves is a proportion of the labour force it would be different.
PN1618
VICE PRESIDENT ROSS: Yes.
PN1619
VICE PRESIDENT McINTYRE: Excuse me, Dr Kates. Does ACCI look at each response for each employer and just forms a view in its own mind whether it seems sensible and consistent with what the employer does and what it knows about the employer? Or does anyone just give it a sort of a check that way?
PN1620
DR KATES: One of the features of it is that we ensure confidentiality by not even asking the name of the employer. We used to have a spot there for our respondent's name and some you could check back on. We found firstly that the questionnaires were answered the way that simply everything looked internally consistent. There were no obviously inconsistent choices made by businesses. And secondly we found that by asking for specific names it did inhibit some people from replying. So that to ensure confidentiality, which is one of the important aspects of the survey, and also to get a large a response as we could, we stopped asking for any kind of indication which business were involved and simply took the results as they came.
PN1621
VICE PRESIDENT McINTYRE: Thanks.
PN1622
COMMISSIONER LEWIN: Sorry, could I just ask one question. Do we know how many employees constitute the sample of the employers who responded? In other words, what is the population of employees to which this survey applies.
PN1623
DR KATES: We actually do ask the question on the number of employees who are in each individual firm. So we do have that as one of the checks against the data.
PN1624
COMMISSIONER LEWIN: Right, so that becomes the sample size as far as the effects on employees are concerned, is that right?
PN1625
DR KATES: Sorry, I didn't understand that.
PN1626
COMMISSIONER LEWIN: Well, you are talking about effects on the wages of employees. You are able to determine the number of employees employed by the respondent firms to the survey.
PN1627
DR KATES: That is right, yes.
PN1628
COMMISSIONER LEWIN: And that then becomes the sample size of the survey in relation to the effect on employees of the safety net adjustment?
PN1629
DR KATES: In this case we are only asking about what the employers did. So that - - -
PN1630
COMMISSIONER LEWIN: Well, they did it in relation to employees, did they not?
PN1631
DR KATES: Yes, that is right, but we - one of the things we do with the survey, as you see on the front cover, is we say, please do it, it only takes five minutes, and we have endeavoured over the years to make sure that the survey is quick. You get it and you finish it. And that my old rule in the pre-PC days was a cigarette test, so you had to finish the survey before you finished your cigarette. And I think one of the ways we designed this is to get accurate information with the least amount of burden on the players.
PN1632
COMMISSIONER LEWIN: Could you, for my information at least, let me know how many employees are employed by the firms which responded to the survey? I thought you said that was possible.
PN1633
DR KATES: Okay, well, we will have a look at it. We do have, as we will come to later, some data according to the size of the firm, but I think we might be able to get finer results on that. Unfortunately I will not be able to do that until I am back in Canberra, but I will endeavour to get that for you next week.
PN1634
SENIOR DEPUTY PRESIDENT WATSON: Could you also look at, Dr Kates, how many employees were employed by a firm in which an employee received safety net increase directly and indirectly?
PN1635
DR KATES: How many received - - -
PN1636
SENIOR DEPUTY PRESIDENT WATSON: IE, in the first table, the 42.2 per cent there was at least one employee of each of those employers who received a safety net increase.
PN1637
DR KATES: Yes.
PN1638
SENIOR DEPUTY PRESIDENT WATSON: How many employees are employed by that 42.2 versus how many employees were employed by the others when those employees received the safety net increase?
PN1639
DR KATES: We will see if we can add to the information but we do have some data that provides a breakdown on the results by size of firms. So you can get a rough approximation of that. And we will come to discuss that in a few moments.
PN1640
SENIOR DEPUTY PRESIDENT WATSON: Yes.
[11.31am]
PN1641
DR KATES: But the first question - and we might add that the results are weighted. These are the weighted full survey results. What we do with all of our surveys is we weight them by size of firm and by number of employees and it is done at a single time so that to get an improvement in the accuracy of the survey, based on the sample we have, we slot - we increase or reduce the weight of any particular response, depending on that industry's proportion in the economy at that size of firm.
PN1642
So we reduce - if we have in the sample a certain proportion of respondents who are in a manufacturing industry with fewer than 20 employees, the weight of those responses are made to conform exactly to the proportion in the economy of manufacturing employees with less than 20 employees in their firms. So that when we finally reassemble all of the data, the data are weighted in terms of the actual contours of the economy. In doing that - and we have there the first question: As a direct result of the safety net, did any of your employees receive an increase in wages?
PN1643
What we find is that in 42.2 per cent of firms the answer was yes, there were, and in 57.8 per cent of firms the answer was no, there were none. So that something just under half of all firms have employees who are paid an increase that arises out of the safety net decision. We then go to the second question and the question was: As a direct result of the safety net decision, did you raise the wages of any employees receiving over award payments? What we find is that in 30.4 per cent of firms the answer was yes and that in the remaining 69.6 per cent the answer was no. Again we emphasise that these are the proportion of firms, not the proportion of employees.
PN1644
COMMISSIONER LEWIN: You did attempt to control for a problem with this, I noticed, in your questionnaire but some employees may have been receiving over award payments which would have not been such that their wage rates exceeded the wage rates after the safety net adjustment in a relevant award. So that in order to pay the wage rate prescribed by the award to some employees receiving over award payments, depending upon the magnitude of that over award payment, it may have been necessary to actually provide for an increase.
PN1645
DR KATES: Well, we attempted to control for that by saying in that question: Did you give increases to anyone over award payments, even though you were not compelled to do so by the decision? So that, in our view, if respondents were answering it correctly, and our view is that they were, that they would have satisfied that criterion. The next question asked about whether, as a direct result of the safety net decision, did you raise the wages of any non-award employees, and again this is across all businesses.
PN1646
We find that in 18.8 per cent of firms - and this includes whether there were or were not award employees on the awards and receiving safety net, but across all firms, 18.8 per cent said yes, they had flowed the increase in safety net to non-award employees. We then asked: did the increases in the safety net have any effect on employment in your firm? This is part-time, full-time, doesn't matter, just on employee numbers. While the figure is 0.0, there is a smallish proportion that actually did say that the number of employees was higher than it otherwise would have been.
PN1647
But where you get the bulk of the answers is that there was no effect on employment in 91.8 per cent of firms but in the remaining 8.1 per cent the answer was that the number of employees was lower than it otherwise would have been. So that employee numbers in 8.1 per cent of Australian businesses did, as a result of the safety net, have less employment as a result.
PN1648
The next question is: Did the increases in the safety net have any effect on full-time employment in your firm? Here again, you find that the effect on full-time employment there is a 0.0. It actually - I am sorry; I apologise for the way this has come out in the print but it was zero in the number of full-time employees was higher than otherwise would have been. Then in terms of full-time employment, 93.3 per cent said that it had no effect and then, finally, 6.7 per cent said that the number of full-time employees was lower than it otherwise would have been.
PN1649
Then, lastly, we asked: As a result of the safety net, did you reduce the number of full-time employees and increase the number of part-time or casual employees? What we find there is that we reduced full-time and increased part-time. This occurred in 2.0 per cent of firms and in the remaining 98 per cent it did not take place. We then broke the data down again and we asked the firms where no employees has received a safety increase. So in terms of the first question, it was those who had answered no. If none of their employees had receive the safety net, then all of those firms are in this set of data and we looked at how their results unfolded.
PN1650
We said: As a direct result of the safety net decision, did you raise the wages of any employees receiving over award payments? The data showed that in 6.6 per cent of firms the answer was yes. Did you flow the increase on to non-award employees? The next table that is on page 243 shows that in 8.6 per cent of firms there had been a flow-on to non-award employees. We then asked: Did the increases in the safety net have any effect on employment in your firm? We found that amongst these firms only 2.0 per cent had reduced employment below what it otherwise would have been.
PN1651
The next page, on page 244, the effect on full-time employment is shown to have been a reduction in 2.6 per cent of firms relative to what otherwise might have occurred. Then, finally, the reduced full-time and increased part-time, the data show that this had occurred in 3.3 per cent of firms where no safety net increase had taken place. We now turn, on page 245, to the issue of the effect in firms where there had been an increase to at least one employee in the safety net, so which is why we have in that first table: received safety increase, 100 per cent.
PN1652
Here we find a completely different picture. While it may be a minority of firms, it is not much of a minority. It is 42.2 per cent of firms. And what the results show us is this, and this is the first question: As a direct result of the safety net decision, did you raise the wages of any employees receiving over award payments? What we find here is that in 50.5 per cent of firms they did not but in 49.5 per cent of firms, which is just under half, the answer is that the safety net decision was flowed on.
PN1653
The next question: As a direct result of the safety net decision, did you raise the wages of any non-award employees? What we find in these firms is that the answer is 37.0 per cent said that they had, while the remaining 63.0 per cent said they had not.
PN1654
COMMISSIONER LEWIN: When you say the safety net was flowed on, the data doesn't actually support that, does it, because you suggest by that that the whole amount was paid, don't you.
PN1655
DR KATES: Well, I am not sure that I know of data that would tell me that it didn't flow on in these - - -
PN1656
COMMISSIONER LEWIN: Well, no, you made a submission that it did flow on. They were your words. But that question doesn't tell us - well, first of all, you have already conceded how many employees received an increase, who were receiving over award payments, and it doesn't tell us what increase they received.
PN1657
DR KATES: Yes, that is correct. We weren't going to start asking businesses to start enumerating who got how much. The kinds of detail you would have to do just to take that next step - - -
PN1658
COMMISSIONER LEWIN: I am not being critical. I am just suggesting that if it is submitted in very broad terms that the safety net increases flowed on to employees in receipt of over award payments, there is an inference that the whole of the amounts were paid to such employees. But you don't draw that inference.
PN1659
DR KATES: It is true that the survey doesn't tell us how much of it or how many in numbers. What it does tell us is that in terms of over awards, in 49.5 per cent of those firms it did flow on to other employees. The inference we would take is, given the increases last year of 13, 15 and 17 dollars, that all of it would have been flowed on.
PN1660
Our strong view has been, across the entire period of the safety nets, that maintaining relativities in the workplace is something that will happen because businesses have an actual commercial need, an industrial need to maintain those relativities because once the safety net goes up - and we are talking since 1997 of increases of $64 across the safety net. So that once that base moves up, unless we are looking for serious instability at a workplace, others who are in the same workplace doing, perhaps, similar jobs with higher levels of responsibility or who have had longer years of tenure, who have greater skills or whatever, those relativities which are established in workplaces will be maintained.
PN1661
So that once those increases in the safety net are granted, it is our view that, at the very minimum, identical increases will be granted to others to maintain the relativities. So that where it says that 49.5 per cent flowed on to over award employees and 37.0 per cent flowed on to not award employees, although we cannot specifically demonstrate that it was the full amount, our assumption would be overwhelmingly that yes, it was the full amount that was flowed on.
PN1662
We then ask - and these are the firms in which the safety net had been paid to at least some employees - we asked: Did the increase in the safety net have any effect on employment in your firm? What we find here is that in 1.0 per cent, the effect was that employee numbers were higher. Although at first it appeared to us something of a surprise, on reflection, it also occurred to us that if businesses had expected the ACTU claim to have been granted, that the fact that it was ultimately lower than the claim may have led some firms to increase employment because of the expected level of increase, due to the claim.
PN1663
SENIOR DEPUTY PRESIDENT WATSON: Wouldn't that suggest they misunderstood the question?
PN1664
DR KATES: No, I don't think so. It is always a possibility that someone may have understood [sic] the question but I think that it is - - -
PN1665
SENIOR DEPUTY PRESIDENT WATSON: The question is directed to trying to find out the employment effect of a safety net increase, as distinct from the effect of a different outcome to the expectations of the employer.
[11.46am]
PN1666
DR KATES: Well, I am certainly happy to accept your premise that higher labour costs will lead to lower employment, and so that the expectation will generally be that these increases in the safety net, if it had any effect at all on employment, would be to reduce it. But I can also understand how in the business, that - had expected the ACTU claim perhaps to be ratified, that when it was a lower amount than had been anticipated, that firms might have gone on to say, well, in that case we will hire more than we thought we otherwise would.
PN1667
But again we don't know how business has interpreted the question. We do think though that they would have perfectly well understood what the question asked them to answer, so that the 1.0 per cent may be some indication of misreading, but I think more likely it is accurate. But even if it were misreading, then it is only that 1 per cent, which is hardly a significant matter. Particularly if you look at the rest of the data, which shows that there was no effect on employment in 8.23 per cent of firms.
PN1668
And that finally, the number of employees was lower than otherwise would have been in 16.7 per cent of firms. So that one firm in six there was a reduction in employment because of the introduction of the - because of the increases granted through the safety net.
PN1669
COMMISSIONER LEWIN: Was it a reduction in employment, or a reduction in propensity to employ?
PN1670
DR KATES: That is correct, Commissioner, it is both. That the way the question was worded was, did you have fewer employees than you otherwise might have? So this could still have been in firms that had increased employment, but the number of employees they took on might have been fewer in number than they had thought they might.
PN1671
COMMISSIONER LEWIN: So it is the propensity to employ?
PN1672
DR KATES: Yes, that is correct. Well, only in part. It is partly propensity and partly actual decisions in some firms.
PN1673
COMMISSIONER LEWIN: Yes, where is the actual - which question do you say demonstrates the actual reduction in numbers as opposed to the propensity to employ?
PN1674
DR KATES: Well, the question - well, this is question 4 and 5, and it is - it asks about what they actually did, and it said:
PN1675
Did you have fewer employees?
PN1676
COMMISSIONER LEWIN: Sorry, which page is that on?
PN1677
DR KATES: Well, if we go back to the questionnaire on page 238, which is the last - just in front of the blue - in front of the blue line. so the end of that, just to the end of the - I think it is the other direct, Commissioner. It is over here - - -
PN1678
COMMISSIONER LEWIN: I beg your pardon. Which is the answer that corresponds in the results? Which - where you set the question about actual employment as opposed to propensity to employ. And you get an answer that there was a reduction in the actual level of employment at the time of the safety net or shortly thereafter as a result of the decision?
PN1679
DR KATES: I think that our respondents would have read it as asking, did you reduce employment. That would be how they would interpret that question overwhelmingly.
PN1680
COMMISSIONER LEWIN: Did you reduce actual employment?
PN1681
DR KATES: That is right, I agree, yes.
PN1682
COMMISSIONER LEWIN: Well, the question, it seemed to me, but I may be wrong, did not actually use that form of words.
PN1683
DR KATES: That is correct, it didn't.
PN1684
COMMISSIONER LEWIN: The way the question was framed, it seemed to me, was asking an employer about their propensity to employ in light of the changed costs of labour which arose from the safety net decision.
PN1685
DR KATES: I, having written the question, it maybe harder for me to perceive what you are saying, that it might otherwise be, but in my view, the question simply says, did the increase have any effect on the level of employment? Did it leave to a different outcome in employment than had there not been that safety net. And they are given three choices. And it says, the number of employees was higher than it otherwise would have been. Or there was no effect on employment. Or the number of employees was lower than otherwise would have been.
PN1686
And while it is carefully worded in that way so that what we are trying to get at is the relative number of employees in two different states of award. What we - what is almost certainly the way it would have been answered, was that, yes, we reduced number of employees because of that decision. That is how I would have assumed that it was interpreted, but there was always the option of recognising in the way the question was worded that even though we increased employment, we didn't increase it by as much as we otherwise would have.
PN1687
So that we were trying to get some overall effect on the labour market. And it is, I think, very likely that many firms, particularly in the environment of last year, would have seen the safety net as in some sense one more reason for thinking that it's important to pull back on this particular cost, and that they would have chosen either to reduce their employee numbers or to have fewer numbers than they otherwise would have because of the decision.
PN1688
Now, that is what is asking, and we were at pains to try to get our respondents to focus in on just that issue.
PN1689
COMMISSIONER LEWIN: You are saying that the question - it is two questions in one; is that what you are submitting? That is - is a question, did you actually reduce employment? And also was employment lower than it otherwise would have been?
PN1690
DR KATES: Yes, I agree but - - -
PN1691
COMMISSIONER LEWIN: Because you could answer, no, and yes to those two questions, couldn't you?
PN1692
DR KATES: And yet - - -
PN1693
COMMISSIONER LEWIN: You could answer - you could potentially, as an employer, answer, no, and, yes, if the question encompassed both categories?
PN1694
DR KATES: That is potentially true, yes. It is possible for someone to have increased their employee numbers and still have had the number of employees affected by the safety net decision last year. So that a total level of employment is actually diminished relative to what otherwise have occurred. I mean, we get used to the idea that over the year that something like say, 100,000 jobs were created between one day and another day, when in fact what really does happen is that a million jobs are created and either a million point one jobs disappear, or 900,000 jobs disappear, so the difference between the number of jobs in total that are created and the number of jobs in total that disappear, is the net movement in the labour force.
PN1695
What we are trying to get at here is some idea of the net movement as a result of the increases granted through the safety net. So in this case, wording it this way, we are saying, did you have fewer employees in your enterprise because of the decision than you otherwise would have had? And in our view that is the employment question, because it focuses in on the true dynamic of the labour market.
PN1696
I then return to page 247 of the section on the results, and this was the effect on full-time employment in firms that had increased at least one employee's safety net - increased one employee's award wage because of the safety net, and here we are talking about the effect on full-time employment and it states that:
PN1697
That the number of full-time employees was higher than otherwise would have been.
PN1698
And that is 0.5 per cent of firms. There was no effect on full-time employment. And that occurred in 83.3 per cent of firms. And then finally:
PN1699
The number of full-time employees was lower than it otherwise would have been.
PN1700
And that occurs in 16.2 per cent of firms. And then lastly we asked about switching from full-time to part-time and casual, and the data shows that this occurred in 15.7 per cent of firms in which at least one employee had received safety net. Now the ACTU has raised a number of questions about the survey and particularly in terms of the respondent bias, and that variances are large because of the low response numbers.
PN1701
All of these are issues that important considerations in any survey, but we think in no uncertain terms that the data stand up to the closest imaginable scrutiny. That given the accuracy of the survey in picking movements in the economy generally, and given the fact that it is a survey across all sectors of the Australian economy and includes firms of all sizes, and given that the data are weighted by industry and size of firm, we have an enormous confidence that these figures are giving highly indicative numbers about what the true situation out in the Australian labour market was.
PN1702
No-one will ever know the true number because, as with any survey, what you do is you take a sample of what happened out there, and you infer form the sample what the reality was. And that is true in this survey, it is true in everything done by the ABS. These are samples, and from that sample you can make assessments of what is taking place in the economy.
PN1703
We are now going to turn to look at the break down of this data in terms, first, of the size of firm, and then in terms of the industry break down. And what is really important to appreciate is how the numbers stand up side by side with each other. Because in effect what we are looking at is data in terms of three different surveys, entirely independent, run at the same time with the same questionnaire. Because in each of these breakdowns of the data, we are not looking at any overlap between one firm and another.
PN1704
What we are looking at are answers given independently by firms out in the Australian economy, who had received the questionnaire and responded to it without any consultation, without recognition that someone somewhere else was doing that same questionnaire, in a different part of Australia. So when I look - when we look at the results on a survey of the safety net, all firms, by employment levels, what we are looking at are three different sets of outcome. That because they are in so many ways similar to each other, is self-confirming. That it is an internally consistent set of results. There is no volatility between small, medium and large businesses.
PN1705
There is nothing in the data that makes you think that there are odd aspects taking place in the figures that should make you believe that anything other than these figures are telling you something about what did happen in the Australian labour market at the end of - towards the end of last year as a result of increases granted to the safety net.
PN1706
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, doesn't it presume that there would be a similar experience as between the various sectors? Why would you assume this?
PN1707
DR KATES: Well, I would assume that the kind of differences that you find are explicable, and I would assume that the outcomes would not be particularly different between small, medium and large, in terms of these kinds of outcomes. I have no reason to think otherwise than - that these numbers are the same. But what I am saying is, if you work your way down, or rather, across, you are looking at numbers that do not lead us anyways to the conclusion that there is a serious difference between how these outcomes were arrived at.
[12.03pm]
PN1708
Sure it is true that there may well be differences and that the survey nevertheless seems to show that there were not any. But on the other hand, it is the very fact that the results do seem to be internally consistent with each other and that where there are those difference, they are explicable in terms of what we think we know about the economy. They, in our view, help to give a certain kind of authority to these numbers that might not otherwise have had. And if I could just look at that first table on the results by size of firm, it will be seen that there was a tendency for medium and larger firms to be in the survey relative to smaller numbers, but that there were in our view quite a large sample population for each size of firm.
PN1709
And when we look and when we see what was a direct result of the safety net decision, and as any of the employees received an increase of wages, we find that irrespective of size of firm, it was a similar number; small firms 57.9 per cent; medium sized firms 52.9 per cent; and large firms 57.6 per cent. And I might also note that small in this case was firms of between 1 to 19 employees, medium was between 20 and 99, and large size firms were firms of a hundred or more.
PN1710
SENIOR DEPUTY PRESIDENT WATSON: A hundred or more full-time or what?
PN1711
DR KATES: It just asks - sorry - how many employees do you have? Number of employees covered by this return is all we ask.
PN1712
SENIOR DEPUTY PRESIDENT WATSON: Thank you.
PN1713
COMMISSIONER LEWIN: When you said that you had good sample representation across that range, in other words I gather that you say that your sample was broadly congruent with the compositional aspects of small, medium and large firms in the economy?
PN1714
DR KATES: Actually I think it is not bad in terms of applying distribution.
PN1715
COMMISSIONER LEWIN: All right. Did I understand you earlier to say that you also weighted your sample for sectoral differences, as well?
PN1716
DR KATES: Yes, we did.
PN1717
COMMISSIONER LEWIN: Does the congruence of the sample size across the size of firm, is that reflected in the sectoral composition?
PN1718
DR KATES: I could not tell you that, Commissioner, but I - but the reason that we weighted is - - -
PN1719
COMMISSIONER LEWIN: I understand you have weighted it, but you understand probably why I am asking you this question, because if you had a very poor match sectorally, you are weighting up possibly two or three firms in some sectors of the economy and drawing conclusions about the whole economy.
PN1720
DR KATES: Well, we will come to that in a moment. We will look at the industry breakdown.
PN1721
COMMISSIONER LEWIN: Because as I understand it, you got 350 responses, did you not?
PN1722
DR KATES: Yes. I mean, we take an inference on the economy based on 350 responses, but it is the sort of response that you get to the Gallup Polls, so that you phone up a few hundred households and you get a sense of what is going on in the community generally.
PN1723
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, that is 356 of 1165 they sent out; is that correct?
PN1724
DR KATES: Sorry, which one?
PN1725
SENIOR DEPUTY PRESIDENT WATSON: 356 responses out of 1165 surveys sent out; is that correct?
PN1726
DR KATES: Yes, that is correct.
PN1727
SENIOR DEPUTY PRESIDENT WATSON: Is there anywhere in the material which tells us the small - by firm size, the '95 small respondence that was out of how many? 136 out of how many? 125 large out of how many?
PN1728
DR KATES: No, we have no way of knowing that. The mechanism just sending the survey out to our members and saying please send this out, we can know in general terms how many they sent out, but we do not have any idea of the census of their membership.
PN1729
SENIOR DEPUTY PRESIDENT WATSON: So you do not have any idea of the proportion of response by sector or presumably then by industry?
PN1730
DR KATES: That is correct.
PN1731
SENIOR DEPUTY PRESIDENT WATSON: The 22 primary - you do not know out of how many sent out?
PN1732
DR KATES: That is correct.
PN1733
SENIOR DEPUTY PRESIDENT WATSON: Yes, thank you.
PN1734
DR KATES: We then asked as a result:
PN1735
As a direct result of the safety net decision, did you raise the wages of any employees receiving over-award payments?
PN1736
And this is on page 2. And we find that approximately 29.3 per cent said yes amongst small firms, 31.3 said yes amongst medium size firms, and 31.4 per cent said yes amongst large firms:
PN1737
Did you then raise the wages of any non-award employees as a direct result?
PN1738
And here again you see similar increases, tending to large or medium size firms, but amongst small it was 20.9 per cent, amongst medium size it was 27.5 per cent, and amongst large firms it was 23.8 per cent. We then asked about the increases in the safety net having an effect on employment in individual firms, and what we have here is that amongst small firms 9.6 per cent said that the number of employees was lower than it otherwise would have been. Amongst medium size firms it was 9.8 per cent, and amongst large firms it was 10.8 per cent; a slight drift upwards in the proportion of firms, which is accentuated in the next question:
PN1739
Did the increase in the safety net have effect on full-time employment in your firm?
PN1740
And what we find here is that amongst small businesses 4.5 per cent of firms said that employee numbers were lower than they otherwise would have been. In medium size firms, it was 9.3 per cent, and amongst large firms it had risen to 14.7 per cent. And in our view, the higher proportion amongst larger firms reflects something of the accuracy of the survey, because one would assume that the larger the firm the smaller the proportion that any individual employee would represent of the total labour force. So that there is actually more scope in larger firms.
PN1741
If of course does not say that there was a fall of 14.7 per cent in employment; what it says is that in 14.7 per cent of large businesses, there was a fall in the number of employees relative to what otherwise would have occurred. And then finally we find that in the last question, we asked whether they had reduced full-time and increased part-time employment, that again there is an upwards trend between small, medium and large, so that amongst small firms the answer was 2.3 per cent, amongst medium size firms it was 4.6 per cent, and then amongst large firms it was 12.3 per cent.
PN1742
Again, because of the greater scope for reducing numbers and reducing hours and switching employees between full-time and part-time and casual amongst larger firms, we find these numbers indicative of something we think would be likely to have occurred within the labour market overall. Then if I could go to the data on the safety net by size of - by industry category. And what we have here is again a breakdown of the sample in terms of the industry composition that we asked questions of and then reconfigured the survey to fit into those outcomes when we weight.
PN1743
And what we find is that there are in general similar, if not entirely exact, relationships between the sample we have and the economy overall. So that we have 41 respondents from the manufacturing sector, we have 38 from construction, wholesale/retail 58, personal services is 149, and services to business is 48.
PN1744
SENIOR DEPUTY PRESIDENT WATSON: Is that reflective of the economy?
PN1745
DR KATES: Pardon?
PN1746
SENIOR DEPUTY PRESIDENT WATSON: I understood you said that showed the survey to be reflective of the economy.
PN1747
DR KATES: Well, it is - - -
PN1748
SENIOR DEPUTY PRESIDENT WATSON: The balance between wholesale and personal - wholesale/retail and personal services is, one would think, not representative of all of the economy. Hence the need for the weighting, presumably.
PN1749
DR KATES: We will have a look at that. We will get some exact proportions. But of course it is precisely because the sample is different from the economy generally - - -
PN1750
SENIOR DEPUTY PRESIDENT WATSON: That you undertake the weighting.
PN1751
DR KATES: That we do the weighting, that is right. So that we understand that our surveys are not going to be exactly comparable to the contours of the economy, and what we have to do is recraft our data into exactly the same structural proportions. And, I mean, it is not as if we were unique in doing this. Every major survey - - -
PN1752
SENIOR DEPUTY PRESIDENT WATSON: No, no, I accept all that. I just wondered why you made the point that the figures on their face were representative?
PN1753
DR KATES: I just find it interesting that - in terms of our membership, that it does have that broad sweep across all industries. The data on primary is made up of a certain number of agricultural businesses, but is also made up of our mining industries, and they are - in fact it is something like 50/50 in terms of respondence. The manufacturing sector - anyway, turn to actually look at the results in question - on question 1, and it says:
PN1754
As a direct result of the safety net decision, did any of your employees receive an increase in wages?
PN1755
And if we look across the data, it is, in the primary area, 59.1. Manufacturing was 41.5, construction 36.8. But as we move into retail and personal services, suddenly the proportion spikes upwards and there for wholesale and retail trade it is 62.1 per cent, and personal services was 69.1 per cent. But then finally going to the last category of services to business, it falls to 33.3 per cent. We then ask:
PN1756
As a direct result of the safety net decision, did you raise the wages of any employees receiving over-award payments?
PN1757
And here again it is broadly similar in pattern, but you have a primary of 33.3, manufacturing 24.4, construction 27.0 per cent, wholesale and retail 32.1 per cent, personal services 35.9 per cent, and business - and services to business 21.3 per cent. So that what we are looking at is some tendency for the safety net decision to have been passed on to over-award employees to a greater extent in retail and personal services. We then ask about what took place amongst non-award employees, and that is at the second table on page 6:
PN1758
And did non-award employees receive an increase?
PN1759
And we find that in primary it was 23.8 per cent, in manufacturing it was 23.1 per cent, for construction it was 16.2 per cent, in wholesale and retail it was 24.5 per cent, for personal services it was 30.3 per cent, and in services to business it was 14.9 per cent.
[12.18pm]
PN1760
So that again you see the same kind of pattern where there was something more than an increase amongst retail and wholesale trades and personal services, although in this case manufacturing was similarly - in that same order of magnitude.
PN1761
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, where does the combination of cafe and restaurants come within these various classifications. They are not the same obviously as ABS classifications.
PN1762
DR KATES: Well, the classifications in the questionnaire are the same, but we have grouped just for convenience in this case.
PN1763
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN1764
DR KATES: We did not want to take all the 12 ANZIC code classifications at the front of our - - -
PN1765
SENIOR DEPUTY PRESIDENT WATSON: Well, where does a combination of cafes and restaurants fall.
PN1766
DR KATES: That would be in the personal services.
PN1767
SENIOR DEPUTY PRESIDENT WATSON: I see, well, in that case the numbers would be higher. In the earlier question I was think about the personal services as defined by the ABS.
PN1768
DR KATES: Yes, that is correct, yes. That is right. We then turn to ask the question.
PN1769
Did the increase in the safety net have any effect on employment in your firm.
PN1770
Again we look through the industry sector, amongst primary there was no effect at all. And given the high preponderance of that sector including the mining sector I was not at all surprised to find that outcome. Amongst manufacturing firms it stated that 9.8 per cent of firms had reduced employment as a result of the safety net. The figure for construction shows that 5.6 per cent of firms had reduced the level of employment as a result of the increases granted through the safety net.
PN1771
We then move over to the service sector and suddenly there is a very different outcome. What we are looking is for wholesale and retail trades it was amongst those 14.5 per cent of firms reduced the number of employees relative to what they believe it otherwise would have been, and amongst personal services this figure was 13.8 per cent. Finally in terms of services to business, and it is interesting to note that there was in which there was an increase as there was a decrease, but both cases it was a very small amount. There was an increase and a decrease in 2.1 per cent of firms of total employment.
PN1772
Then looking at the effect on full time employment in each firm we find that in terms of full time numbers, again, it is the wholesale and personal services area where the preponderance of the effect on full time employment has occurred. And what you find is that manufacturing firms there had been a reduction of 7.5 per cent of firms, amongst construction it was 5.6 per cent, and then we rise ago for wholesale and retail trade to 13.0 per cent, personal services 13.9 per cent, and then finally, services to business.
PN1773
Then the last set of data, again this is, we think, it conforms to our expectations of what the data might have looked at if we sort of thought in terms of where the relativities might be, who would have a greater effect, where would the greatest effect be. And in terms here of the conversion of full time employees to part time employees we see that amongst primary industries it did not happen in any firms, amongst manufacturing it occurred in 2.4 per cent of firms, within the construction sector it happened in 2.8 per cent, for wholesale and retail trade it was 9.4 per cent, and for personal services it was 10.9 per cent, amongst services to business it did not occur in any firms at all.
PN1774
What we are at pains to point out is that these data have a horizontal integrity so that the results look right in terms of relativities between them, but also the vertical, going down. These are, in effect, six independent surveys. They were sent to different industries, each questionnaire that we received back simply says - it states which industry they are in, once they have said which industry they are in, that slots them into that particular result, and it has no effect on any of the other results. So if you are in the manufacturing industry it does not affect construction or wholesale and retail trade, or personal services, or services to business. It is simply the result within its own category.
PN1775
So that looking at it in terms of the result within its own category the results show if nothing else a correct relative distribution in where we would expect outcomes. We would expect the services sector to have endured a larger effect on unemployment than non-services. We would have expected that wholesale and retail trade and personal services more than services to business. And what the data do, if nothing else, it reflects in our view at least the contours of where these reductions in employment would have taken place.
PN1776
So that we think in terms of the internal consistency both horizontally and vertically these results do stand up. But when we think in terms of the final data that we have on the survey, what they do is reply to what the ACTU has said in a number of years. The ACTU has said that there are no reductions in employment and as a result of the safety net. What this survey shows is that at least in terms of the decision last, in terms of an economy that was rocked by a number of problems, mostly driven by the Reserve Bank, that the increases granted through the safety net, which the Commission itself noted were substantial increases, did have an effect on jobs. It did reduce employment. It did reduce full time employment. It did cause, in our submission, a transfer of jobs from the full time category to the part time category.
PN1777
COMMISSIONER LEWIN: Would it be true to say that survey measures the incidents of effects but not their magnitudes? If we accept everything that you say about it's structural integrity.
PN1778
DR KATES: Yes, I think what - all we can see is what happened in particular portions of firms.
PN1779
COMMISSIONER LEWIN: So it is the incidents of certain effects occurring within firms which you say is statistically reliable and robust as a model?
PN1780
DR KATES: Yes.
PN1781
COMMISSIONER LEWIN: From which inferences of a general nature can be drawn? That it does not measure the magnitude of those effects?
PN1782
DR KATES: Yes, I say that what we would have liked is to actually have had a number that said X number of employees had this effect, and it occurred to X number of employers. That would have been ideal in this case. We do not have that. What we do have - - -
PN1783
COMMISSIONER LEWIN: I am not being critical of it. I am just wanting to be clear on how far you take it.
PN1784
DR KATES: No, I am agreeing with you.
PN1785
COMMISSIONER LEWIN: But you accept that it is a matter of incidents, not magnitude.
PN1786
DR KATES: Yes, yes, I do agree. But what we are looking at is the contours of what happened between different firms in different industries and in different sizes, and that is what this survey most certainly, in our view, accurately pictures and reflects. And when we take this data, and because we know there are problems in terms of the construction of the survey if we merely use the raw data, what we do is we bundle the data both in terms of the size of firm and in terms of the industry composition and structure and we turn them into a single composite weighted average across the economy, and in our view what you get there is an accurate robust estimate of what happened in Australian firms following the safety net decision last year and what we think this demonstrates is that higher increases than the economy can sustain do cost jobs and do lead to lower levels of employment both in actual number of full time employees and in the hours worked across the economy, because when they cannot be afforded something has to give, and what tends to give is that there are fewer employees employed. Now, I will go on to costings now, your Honour, would this be a convenient time?
PN1787
JUSTICE GIUDICE: Yes. We will resume at 1.30.
LUNCHEON ADJOURNMENT [12.28pm]
RESUMED [1.33pm]
PN1788
DR KATES: Thank you, your Honour. I was just coming to deal with the costing of the ACTU claim and we would begin by noting the various criticisms that the ACTU has levied at the approach that we have adopted over the years. There is, firstly, the issue of the way that data is used to assess the impact of the ACTU claim in general and we note that this has been dealt with in past cases and we just simply rely on those arguments again. Then there is the issue of the reliability of the survey which we have used to assess the flow-on implications of the decisions granted and we will discuss those and we will demonstrate how those figures present a reliable estimate of what would happen if the ACTU claim were granted
PN1789
The first point we would note is that the ACTU argue that since the costings we do applies only to the private sector, it isn't really a valid attempt to estimate the impact of the claim on the economy as a whole. For example, the ACTU in paragraph R3.15, which is on pages 25 and 26 of their reply submissions, stated the following, and I quote:
PN1790
The ACCI purports to calculate the addition to private sector earnings only. Even if it did this accurately, that costing would still need to be adjusted to provide a true economy wide.
PN1791
This is yet one more example of the approach by the ACTU to spread the base as widely as possible so as to minimise the apparent effect and impact of its claim. As we have pointed out in past submissions, the use by the ACTU of a wide base, which includes the wages paid of those not affected by safety net decisions, leads to a situation in which the apparent costs of the claim can be or can appear to be minimised. Representing, as we do, the private sector, we have been constrained to look only at the private sector, which, in our view, is entirely the relevant sector to be looking at by private employers.
PN1792
But the ACTU gives the game away why it asks for a wider dispersion of the base across the entire economy and which would, therefore, include the public sector in these estimates, where it states hereto in its reply submission at R3.12 on page 23, and again I quote:
PN1793
All but an insignificant minority of Public Service Employees do not receive the benefit of safety net increases.
PN1794
In other words, the ACTU criticises ACCI for not including in its costings a body equivalent to something like a quarter to one-third of all employees in the economy, all of whom do not receive any safety net increases at all. So that while they want to try to minimise the numerator of that equation, they try to expand the denominator as far as possible so that, whatever that increase might be, it will appear in percentage terms to be smaller than the actual impact of what that cost increase will be.
PN1795
Thus, not only do we reject the ACTUs criticisms of the approach we take, but we go further and we state that it is the only correct approach to take if one is attempting to estimate the impact of the claim on both employment and prices because it is in the private sector that these claims will have primary relevance in terms of the outcomes that eventuate. As we have already noted and as we noted in the past, the crucial issue is not what happens to wages overall when an increase is granted but what will happen to those specific employees who actually receive the increases claimed by the ACTU.
PN1796
SENIOR DEPUTY PRESIDENT WATSON: Why wouldn't you then go to the 26.8 per cent of the private sector who are award-reliant and limit the base further to that, in which case the increases are simply division of the $25 by the relevant award rate?
PN1797
DR KATES: Well, if we are thinking in terms of estimating the impact of the claim, then if the impact is, as we say, spread wider so that it does instantaneously, and because businesses wish to maintain relativities, that it does flow, that I don't think you can stop at that 26.8 per cent.
[1.39pm]
PN1798
But we go further and we say that the increases are not spread across everyone; they are localised and concentrated on particular individuals at particular amounts, so that if the ACTU claim were granted, someone on the minimum wage would receive an increase of 6.0 per cent, and in other words someone who was paying that increase would have to pay an increase of 6.0 per cent. Similarly for someone at C10, that increase to that person would be 4.9 per cent. So when the ACTU says that the cost of the claim is .2, in some really abstract and totally irrelevant way it is not focussing on what will actually happen in a sandwich bar downstairs when an employee suddenly has a price tag that has gone up by 6.0 per cent, so that an employer will have to find, either in the prices it charges or somehow in some kind of improvement in productivity, or in whatever way they can, some kind of way to accommodate that increase.
PN1799
And what we say is that one of the ways that these increases are accommodated is through lower levels of employment. And if we are looking at the costing, to pretend that the increase is .2 completely trivialises what is in fact - are very large increases for very specific people at very specific places throughout the economy. And what we are trying to get at is that all costings, ours, the Commonwealth's, ACTUs, that look at the cost of the claim to the company overall, to an important extent misunderstand what the impact looks like. It sort of moves the focus away from where the focus ought to be and spreads the apparent effect of the increase both on the price level, on employment and on other aspects of the economy, and it spreads it across so that what really does happen to employment is it is shrouded in an abstraction that really has no relevance to what takes place at the workplace.
PN1800
SENIOR DEPUTY PRESIDENT WATSON: But it is the reflection of a broader economic effect. You cannot look at the employment effects in isolation on one employer, can you? In the sandwich bar downstairs, one of the two, one might be paying above the award and one at the award; one receives the safety net increase because of other factors, might decide to close down. Less employment in that sandwich bar, but the other sandwich bar might employ more people to pick up additional demand that it obtains.
PN1801
DR KATES: Well - - -
PN1802
SENIOR DEPUTY PRESIDENT WATSON: I mean, it is a very complex economy.
PN1803
DR KATES: I do not doubt it is a complex economy, but what we are trying to say is that just the example that the ACTU says you should include the public sector in your denominator, even though there are no - or very few public sector employees who will be affected by the safety net decision. Now, why include such employees? Why would that even in the slightest way invalidate our cost estimates? We would say that it does not invalidate it; that to include something like a quarter of the employed population in the denominator at that stage simply lowers the apparent impact of the claim, but does not actually allow you to see past the veil of these numbers to what really is the impact.
PN1804
So if you just take the Commonwealth's estimate of .59 and you adjust it for the fact that public sector employees are not included, you end up with a cost claim in the private sector alone of something like .8. So we are now starting to talk about a serious impact on cost overall. And when you start thinking again about the flow-on past that - the first initial group of people who receive the claim and go on to those to whom it flows, add another 25 or 30 per cent, you are over 1 per cent additional. And if we think of an economy in terms of an aggregate movement in wages affecting an aggregate movement in employment or an aggregate movement in prices, then yes, there is something in that, although there is always a great deal of roughness between such macro economic aggregates.
PN1805
But nevertheless if you think in terms of how these various aggregates mesh together, I think starting from the way the ACTU does, where it is .2, and saying, well, that is the full impact, entirely misses in two ways; it misses what happens in the private sector because it just refuses to simply concentrate on the private sector. And secondly it misses what happens at the individual workplace to the individual employee who suddenly ends up with a 4.9 per cent at C10 level or a 6 per cent increase at the minimum wage level, and it ignores what will be the dynamics in that particular enterprise when those increases are granted.
PN1806
I mean, the ACTU should actually be made to say what it thinks will happen to individual employees who end up with an increase in the pay that the employers must pay them, increases well beyond the CPI. And in many workplaces well beyond the productivity of their employers. These are, we say, the kinds of cost increases that have to be looked at. We do not mind looking at the macro aspect, because we think that has, in its own way, a kind of relevance. But we also think that the more micro aspects should also be looked at.
PN1807
So that when we talk about an increase in the minimum wage of 6 per cent, we are not just abstracting it away to being .2 and therefore entirely manageable, but instead it becomes an increase of 6.0 per cent that must be paid by a particular employer in a particular business to a particular employee, and then the question becomes what happens to employment of such individuals. Or at C10 level where it is 4.9 per cent increase we are talking about, what happens to employment of those individuals?
PN1808
And what we say is that in terms of how the cost increases will affect businesses, it will be in terms of those individual increases, and it cannot just be spread away so that the increases that are not paid to the public sector employees through the safety net are somehow an outlet for the fact that in certain businesses over here there really is an increase of 6.0 per cent. The two simply do not mesh. One does not, in our view, compensate for the other. There is an actual impact at the workplace that the ACTU persistently ignores, and that we think really has to be taken into consideration.
PN1809
We ourselves do a macro costing, but in doing this macro costing we also hasten to add beyond that that the costs that are involved in these across the economy estimates, or across the private sector estimates are just one way of looking at the full impact.
[1.48pm]
PN1810
If we are going to see the impact in terms of all of the ramifications, in our view, you have to also include a closer look at particular enterprises and particular increases that happen to particular individuals. And that is the focus that the ACTU has persistently refused to look at. We also note that, in our own way we seem to have made a bit of progress in the ACTU's view of what happens when the safety nets are granted, on page are three points, one, six.
PN1811
The ACTU states that the costings significantly overstate the flow-on effects of the Commission's decision.
PN1812
Now in our own way we think that it is progress that the ACTU finally does agree that there are flow-on effects from the safety net decisions. Until now the ACTU has insisted that safety net increases have been absorbed into over-award payments. Now we find that rather than it is insisting that there is no flow-on, it is only arguing that our survey has, for some reason, over-stated the flow-on. But at least it does accept that there is a flow-on, and in our submission that is certainly a step forward.
PN1813
Now if we could look at the costings that we have provided here, they are in the last document we tendered, and the last page. This is ACCI8, and what we have there are a series of estimates of how the cost increases should be estimated. And what we find is that if you take the first column, it shows the proportion of total private sector employees, whether they are paid, they are private sector award dependent employees, over-award employees or non-award employees. We then move to the second column in which we talk about proportion of employees per category receiving increases directly through the safety net decision.
PN1814
For private sector award-dependent employees, we are talking those precisely on the award. It is 100 per cent those employees. From our survey we have a figure that says approximately 30.4 per cent of award dependent - of those who are paid the over-award receive the increase flowed on to them through the safety net. And then again from our survey we find that 18.8 per cent of non-award employees receive an increase directly as a result of the safety net.
PN1815
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, that is not what the survey shows, is it? It doesn't show the proportion of employees per category receiving increase through the safety net.
PN1816
DR KATES: No, we have - we agree, taking the proportion of businesses and using that as a proxy for the proportion of employees.
PN1817
SENIOR DEPUTY PRESIDENT WATSON: Well, more than that. The proportion of businesses in which any employee received a safety net increase.
PN1818
DR KATES: That is correct.
PN1819
SENIOR DEPUTY PRESIDENT WATSON: Yes. It is a very different proposition from the proportion of employees receiving the increases, is it not?
PN1820
DR KATES: Possibly. The - what we have is, of course, the 30.4 per cent where it could be anywhere from one employee up to virtually everyone. So that it can be from say, 1 per cent up to 95 per cent. That some get it, all get it, that the entire structure moves together at one. So that what we are using this figure to do is to get some kind of rough estimate of what is the movement across the economy in terms of proportion of employees who receive an increase in their over-award as a direct result.
PN1821
As - when we have presented these figures to our own members, who have looked at these, our members are completely convinced that these numbers do represent what they themselves understand, as industrial relations practitioners, as the kind of increase that they think - and kind of proportion of employees who would have had that flow-on. But I do concede, and I will come to deal with that other form of costing, that perhaps this number is not right, and that the 30.4 may either be 20.4 or 40.4. It could be anything within certain kinds of bounds. But we have used that number.
[1.54pm]
PN1822
SENIOR DEPUTY PRESIDENT WATSON: How could it be 40.4 having regard to your survey? The survey would suggest the maximum would be 30.4, assuming every employee of each of those employers received the increase.
PN1823
DR KATES: No, you would - it is sort of like the American system of presidential elections where all the votes - - -
PN1824
SENIOR DEPUTY PRESIDENT WATSON: In Florida or?
PN1825
DR KATES: - - - in a particular state, if you win by one vote you get all the electoral votes. So in the same thing here, that if it happens at all whether it is 100 per cent or 1 per cent it can - it will just simply end up being recorded in that particular category. So that it can be more, it can be less. You are simply are left not to know.
PN1826
SENIOR DEPUTY PRESIDENT WATSON: How can it be more?
PN1827
DR KATES: Well, if in those firms, we have 30.4 per cent firms, but if in those firms more than 30.4 per cent of employees receive the flow-on, so you would have - the movement would be an increase of more than 30.4 per cent. Suppose all of those - - -
PN1828
SENIOR DEPUTY PRESIDENT WATSON: But the manner in which you presented this table assumes that 100 per cent of the employees of each of those employers receives a flow-on. It could not possibly be higher, could it?
PN1829
DR KATES: How do I put that? We may have to back and do a numerical example to show how given the way the structure of the survey is compiled so that more employees than the 30.4 can have an increase at that level. So that there is a movement beyond 30.4. This is a kind of mid point, whereas it can be more, it can be less. But we will go back and see what we can construct for you, your Honour.
PN1830
SENIOR DEPUTY PRESIDENT WATSON: Were you intending to address the criticism made by the ACTU as to the alleged mis-categorisation of employees as over-award employees and non-award employees?
PN1831
DR KATES: Yes, I am.
PN1832
SENIOR DEPUTY PRESIDENT WATSON: Yes, very well.
PN1833
DR KATES: The 30.4 per cent for over-award employees and then 18.8 per cent for non-award employees. We then move that along to the third column where we find that 100 per cent of private sector award dependent employees receive the increase, and that comes to 26.8. Over-award employees representing something like a third of all those on over-awards got the increase and that led to 15.0. Then for non-award employees it is 18.8 and that comes to 4.5. We then have used the $19.97, which again we took from the ACTU, which they have explained is a total economy estimate.
PN1834
We then move that to the addition to earnings growth which is the proportion in column 3 times the amount in column 4, and that comes to $5.34 for private sector award dependent employees, $2.99 for over-award employees, and 89 cents for non-award employees. We then relate to all employee total earnings, which is 678.40, which comes to in this case an addition to earnings of .79. So on just the figure for the private sector award dependent employees the increase that would occur is .79, so the .2 disappears and that is with no flow-on. With no flow-on it is .79. You add on .44 for the over-award employees and you add for the non-award employees .13. So that the total movement that we have for all employees in granting the ACTU's claim would be 1.4 per cent.
PN1835
VICE PRESIDENT ROSS: Dr Kates, is there a linear relationship between the amount of increase granted and the addition to earnings? So if the increase granted was half, for example, of the $25 then we would expect a .7 increases in addition to earnings.
PN1836
DR KATES: Yes, if you think in terms of aggregate.
PN1837
VICE PRESIDENT ROSS: Yes.
PN1838
DR KATES: Yes, then I think that is right. I would say that it is linear in that way.
PN1839
VICE PRESIDENT ROSS: If we go back to - to pick I suppose a simple example - if we go to a decision of the Commission which has awarded one level of flat dollar increase, and ACCI in that case would no doubt have made submissions about the addition to earnings or consequence of granting the ACTU's claim, and if we assume that the relationship is linear, as you suggest, then you could work out what ACCI's estimate of the addition to earnings would be of the actual amount granted in that case.
PN1840
If you are able to do that, wouldn't one way of testing the validity of your costing be to look at the difference between the budget forecast earnings increased versus the actual, bearing in mind that from memory the budget forecast increases at least in years past have factored in the amount the Commonwealth supports in the particular wage case. I am not sure if that is still the practice but it used to be. Wouldn't that be one way of checking. I understand there would be a caeteris paribus assumption that might be a bit elastic, but would that be one way of testing the validity of what you say.
PN1841
DR KATES: If I understand what you are asking as of a kind of additional over and above of what is in the Commonwealth budget forecast for wages, and to test this against that kind of increase.
PN1842
VICE PRESIDENT ROSS: Well, given that your methodology can be used to give an estimate of what, in your submission, would be - or would have been the addition to earnings of a past Commission decision, so if you apply it to the $15 adjustment you could have - using the numbers at that time - calculate what the addition to earnings effect would have been as a result of that decision. Can you then test whether that addition to earning in fact took place by comparing the budget forecast for earnings or the mid-year forecast that Treasury uses against actuals. Because if what you say is right then you would expect there to have been an increase at least between - and that increase would reflect the addition to earnings, the difference between what the Commonwealth had factored in as being the safety net adjustment and what was actually awarded.
PN1843
Why I am searching for some empirical basis for testing this is that that all of the costings have an element of assumption, they are assumption driven, and if we can find some empirically useful way of finding out what the actual cost was it would help. Look, I accept that there will be - even if you are able to do what I have suggested, there are assumptions you have to make within that as well, but there has not been anything else that has either depressed or increased earnings or the bargaining has not significantly changed over the period. But it seems to me that it might be a worthwhile exercise.
PN1844
DR KATES: Certainly it has been our - we certainly have been attempting to get the ABS to give us in its labour cost estimates and in its employee forms of payment data some kind of information that would allow us to do that. But what I think we will do, your Honour, is have a look and see if there is anything there that we could assist you with and we will come back on that next week.
PN1845
Now, the 1.4 per cent, as I indicated before, is in the same kind of increase that if you think in terms of the Commonwealth's .59, and they say this will add .59 percentage points to the cost of labour. But then recognise that there are almost no public sector employees. So that if you take out the one-quarter of the workforce or one-third of the workforce that is in the public sector, then what you end up with the increase that goes - instead of being .59 it rises to .79. And if you agree, as the ACTU now does agree, that there is some flow-on, that flow-on takes the increase past the 1 per cent level.
PN1846
So that if you just assume something like a flow-on to a quarter of all employees where the workplace were increases are granted relativities are maintained that the increases that come out of safety net case adds something like on top of the wages cost 1 per cent. Then that is the kind of increase that we are talking about here. But to respond to the ACTU's criticism in a more comprehensive way we would tender an exhibit in which the ACTU's comments have not taken into account the extent that we are able.
PN1847
DR KATES: Thank you. The methodology on the table is the same. Where it is different is in column 4 where we have a figure for weighted increase sought by the ACTU and rather than using the figure of $19.97 as in the previous table, in this case we are using a figure of $18.29 which is what the ACTU estimated the private sector weighted increase would be. We also have made a change in column 6. In the previous table it was stated "all employees total earnings" and that was measured at 678.40. It now is in terms of "all employees total earnings in the private sector" the figure now is slightly lower at $655.45.
PN1848
We have also adjusted that figure to take into account some increase that will, as normal, occur between now and when the decision is granted. Again what we find is that a private sector award dependent - - -
[2.08pm]
PN1849
SENIOR DEPUTY PRESIDENT WATSON: I am sorry, on the last point, between now and when the increase is granted or between the time at which the ABS measured that figure and the increase is granted?
PN1850
DR KATES: Well, yes, it would be when the ABS measures the figure but our aim is to get the figure as it will be at the time that the decision is granted. It is not post the decision; it is pre the decision. So the ABS will have a figure for May and one presumes it will, at that stage, not be a figure that incorporates these increases. But this is an artefact to try to just get a base for the estimate, rather than a forecast of what the ABS will actually produce.
PN1851
SENIOR DEPUTY PRESIDENT WATSON: What was the adjustment factor applied?
PN1852
DR KATES: I am instructed that it was 3 per cent per year, so that whatever the annualised movement over that smallish period would be 3 per cent. I mean, in terms of this table you could make 5 per cent or 6 per cent. It would hardly make any difference. At that point in the table it comes to - it is really just noise rather than actual effect on the number that comes out. What we find is that the addition to private sector earnings, just simply thinking in terms of award dependent employees, is 0.75, which is the same kind of order of magnitude as you would get if you just scaled up what the Commonwealth had itself done.
PN1853
Just scale up the Commonwealth number and you get something like 0.75. You then add in the estimate for over award employees and non-award employees and the number comes to 1.29 per cent. So we have another estimate of the flow-on effects. But even if you just took the .75, which is that figure for the private sector, it itself makes it clear that the ACTUs .2 is just wrong, that .2 is not what happens in the private sector. .2 is a vast underestimate of the addition to the cost of labour that takes place and, just on that data alone, it is 0.75, is the addition to the cost of labour through granting the ACTU claim.
PN1854
If you then add on other amounts for the effect of over award employees, whatever else may be the case, the certainty is that it will be higher than 0.75 and it will move you towards something like, in our submission, 1.29. But, as we have noted, there is roughness in these figures because we don't have the proportion of employees, we have the proportion of businesses but, given that, since we know that some flow does take place, both into over award payments and into non-award employees, since we know that happens, the number is higher than .75 and, according to this figure, it is 1.29.
PN1855
If you use, rather than the $18.29, the full $25, you would get a figure of 1.7 per cent. If you just factored up the Commonwealth number, you would get a figure of 1 per cent. But what we are trying to say is that in terms of costing across the private sector, it is not .2 and to use a number such as .2 to indicate the effect on prices or on employment is, in our submission, simply the wrong sort of basis to make that comparison. If I could now turn to another section of our submission, and this is to discuss - - -
PN1856
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, I thought you said you were going to address the criticism about what was said to be the misuse or miscategorisation within the over award employees and the non-award employees categories.
PN1857
DR KATES: Yes. Actually, I am grateful to your Honour for mentioning it. I did have a note here that I was going to speak to. One of the things that - there are, of course, as far as an employer is concerned, only three possibilities, that you are either paid the award, you are paid as part of an award system but are paid over awards, or you are a non-award employee. In looking at the EEH data, we find that part of the categories of employees whose pay is set by individual agreements, for example, is that it includes an element called working proprietors, who set their own rate of pay.
PN1858
Now, that seriously set our minds working because that was a fourth category that had never occurred to us that would be in these data, that if that kind of working proprietor, who must be a fairly substantial proportion of businesses in Australia - we have something like 350,000 members and many of them are working proprietors. Many of the people who run those businesses are working proprietors. To find that they are embedded in these EEH numbers actually means that the proportions there are actually too low, that they should be just taken out because, whatever else happens, they are not paid according to awards or over awards or, if they are anything, they are in that category of non-award employees, that the data set, as we noted, is the best we have.
PN1859
It is, true, not as good as we would like but in terms of the breakdown of where employees are situated, we find that, dealing with that first column, 26.8 per cent may well be an underestimate of the total number of private sector award dependent employees if we have working proprietors somehow embedded into that statistic as part of the denominator. So that we would not really want to make much more of a point than to say the data may be wrong but it may be higher that the 26.8 per cent might, if you adjust it for working proprietors, turn out to be 30 per cent, that other of these numbers may turn out to be different.
PN1860
But in terms of the breakdown of what happens at a workplace, these are the only three possibilities as far as we can tell and what those proportions are is - I won't quite say anyone's guess but it is something that you are using ABS data because it is the closest approximation you might make.
PN1861
SENIOR DEPUTY PRESIDENT WATSON: But it includes people subject to certified agreements, individual or collective, and on the Commonwealth's analysis of those agreements, most of those persons have their rates regulated by the agreement. It is a wide assumption, isn't it, to assume that over awards would be paid to those persons - sorry, over agreement rates, upon a safety net increase?
PN1862
DR KATES: As far as we are concerned, make any assumptions that we like, put any numbers in you please, you start with a 0.75 and that is the bedrock. No one can dispute that 0.75 as a proportion of private sector award dependent employees, that the increase that will be granted to them. That is just simply there. We are tyring to get some kind of estimate of what happens if you move beyond that. What is the increase in total cost after that 0.75? If the 49.3 per cent is an overestimate, then scale it down to something else. Scale it down to 35 per cent. And then it comes in the first column to something like what, it would be .3.
PN1863
COMMISSIONER LEWIN: And you assume that that scaled down estimate, or whatever it is, is the population of over award employees who receive each and every dollar of the safety net adjustment?
PN1864
DR KATES: Yes, we are assuming that that is what takes place.
PN1865
COMMISSIONER LEWIN: So you say that 30 per cent of over award employees or - is that 30.4 per cent of over award employees, according to your data, receive the whole safety net adjustment based on the fact that the survey says that 30 per cent of the employers responding increased the rates of pay of some or all of their employees by an unknown amount only where those employees were receiving over award payment?
PN1866
DR KATES: Yes, that is the approximation that we make in terms of that immediate, instantaneous effect. If push comes to shove, our submission would be that as far as over award employees are concerned, virtually 100 per cent of them will get it eventually but they don't get it instantly as a direct result of the increase. It takes place as part of negotiations, as part of further agreements, that other things will take place, so that there isn't an automaticity between the two. So what we would say, for example, is that since 1997 there has been an increase in the safety net of $64 and I would defy anyone to find more than a handful of employees, over award, non award, on award, who have not received $64 increases since 1997.
PN1867
SENIOR DEPUTY PRESIDENT WATSON: Dr Kates, are you seriously putting the proposition that 100 per cent of the workforce would receive it as a result of safety net adjustments over time? Are you saying that if there were no safety net adjustments, there would be no wage movements in the Australian workforce?
PN1868
DR KATES: No, I am not saying that, of course not, but what I am saying is that what the safety net does is puts a platform underneath so that what does take place is that there is an increase that is granted as part of the safety net which then becomes everybody's first port of call to get an increase. They are the increases that everybody gets as the starting position. The $64 that has been granted over the past five years is what everybody gets and then the agreement process starts to happen. If there were not the safety nets - - -
PN1869
SENIOR DEPUTY PRESIDENT WATSON: The Commonwealth has put in evidence of agreements with increases below safety net increase levels. How can you say everybody gets increases on the base levels?
PN1870
DR KATES: Well, your Honour, the point we are making is that when the safety net is granted, there is a platform built into the wages system that becomes a kind of presumption of what increases will be granted. Now, in any individual year, and I hope over two or three years, there will be situations where increases less than that granted through the safety net will be agreed with individual employees.
PN1871
COMMISSIONER LEWIN: Qantas seems to have a different about it. I beg your pardon. I am sorry to interrupt. Qantas seems to have a different idea about it.
PN1872
DR KATES: Qantas?
PN1873
COMMISSIONER LEWIN: Well, hasn't there been an agreement recently entered that has been reported for a wages freeze for 12 months?
PN1874
DR KATES: The point about that is when you are in the position for agreements to be made, that there is a situation in which businesses have a kind of ability to put off certain kinds of increases but what we are saying is that if you look across stretches of time, which is why it went better in 1997, what you would typically have expected to happen is that the increases granted through the safety net would have flowed through the economy.
[2.23pm]
PN1875
It may not happen any individual year, but it becomes a platform upon which other increases take place. What we are doing with this table is pointing out that in certain enterprises, and it is 30.4 per cent where over-awards are paid, 18.8 per cent of enterprises where there are non-award employees, the flow-on, rather than happening in - as events unfold through the market, happens instantaneously as a direct result of the award increase.
PN1876
SENIOR DEPUTY PRESIDENT WATSON: Is that in the survey? Does it refer to increases being paid immediately in direct - - -
PN1877
DR KATES: Well, you are correct, your Honour. Yes, it is not necessarily immediately, but it is paid as a direct result. So that one presumes that some time within the period - that is between when the increases were granted and the survey was taken, that the increases would have taken place. But what we are saying is that increases do take place and that the safety net puts a platform underneath what the growth in earnings will be. And that - - -
PN1878
VICE PRESIDENT ROSS: Dr Kates, just before you move off that point, your submission that $64 is the starting point over this five year period and the assumption is that that level of increases flowed through to everybody. That is as I understand what you are saying?
PN1879
DR KATES: More or less, yes.
PN1880
VICE PRESIDENT ROSS: Is behind that submission, an assumption that in those areas that award dependent, that there is perfect compliance with the awards? That all employers are complying with their award obligations?
PN1881
DR KATES: Excuse me, your Honour. Yes, our view would be that there is virtually overwhelming compliance with that. There may be occasions where there is not, but we would say, yes, that there is compliance with decisions in the safety net.
PN1882
VICE PRESIDENT ROSS: And what do you base that on?
PN1883
DR KATES: Well, again I am instructed here that rates of prosecution in this case are low. There is very little evidence that employers are not passing on the safety net. And that I would suspect that an employee, given the front page of the newspapers on the day that the decision is made, would be extremely well aware that an increase had to be granted, and that that increase would be expected to be paid to that employee. And I think that there is almost just a self-checking mechanism in that. And there is very little evidence of employees contacting government advisory agencies.
PN1884
And in fact that employees do contact government agencies to find out, on the day the decision is handed down, what they are entitled to. So that I think there is a broad understanding of what does - what are the obligations of employers and what ought to be paid as increases.
PN1885
If I could turn to the issue of wages and employment. It is, we know, intriguing to read the ACTU comment on the ACCI proposal that the safety net be applied only to those on the minimum wage. This is, of course, the approach used in all other industrialised economies, and the ACTU has the following to say about this means of protecting the lower paid. And this was on page 90 of its reply submission, and I quote:
PN1886
The ACCI proposal is for an increase which would flow to only 6 per cent of award only workers, less than 1.4 per cent of the Australian work-force. It is a derisory and insulting proposal and completely without merit.
PN1887
And I end the quote. One could only be left wondering what the ACTU has been doing all these years, referring to the decisions in the Low Pay Commission in the United Kingdom, or to the decisions to raise the minimum wage in United States, or to any of the other jurisdictions in which the minimum wage is the way in which lower paid workers are protected.
PN1888
JUSTICE GIUDICE: This is material from your reply submission, Dr Kates?
PN1889
DR KATES: It is.
PN1890
JUSTICE GIUDICE: Is that - yes.
PN1891
DR KATES: And I will not go through this with anyhow - we will just get through this. But what we are particularly - we particularly would draw attention to, is the fact that ACTU thinks that only 8 per cent of employers, according to our survey, had reduced employee numbers, and therefore that was just a trivial amount. What they said on page 74 of its reply submission at paragraph R5.4.3, it said:
PN1892
Even so, the survey results suggest that the overwhelming preponderance of firms recorded no impact on employment, and nearly 92 per cent suggesting no effect on employment as a result of the safety net increase.
PN1893
What we find astonishing is that it treats 8 per cent of firms reducing employment as trivial. That if you think of terms of the number of members we have, for whom that survey was distributed to, that that is an estimate of 8 per cent of 350,000 firms in which only one person may have been taken off the payroll, that comes to 28,000 employees. And if you think in terms of the fact that there are other employees in Australia in Australian firms, businesses, besides those who are our own members, and the fact that there are public sector employees who also will be affected by the safety net, then the increase would be over that 28,000. We would be talking 35,000 perhaps, maybe even 40,000 employees who were affected by the decision.
PN1894
SENIOR DEPUTY PRESIDENT WATSON: Over what population, sorry? Over what population? You started with your 356 surveyed employers - - -
PN1895
DR KATES: Yes, that's our membership numbers. And then if you - - -
PN1896
SENIOR DEPUTY PRESIDENT WATSON: No, sorry, I thought was the number of respondents to the survey?
PN1897
DR KATES: No, no, no, it is the membership of ACCI. So if you just think of 8 per cent of ACCI membership - - -
PN1898
SENIOR DEPUTY PRESIDENT WATSON: And ACCI membership is what?
PN1899
DR KATES: 350,000 employers.
PN1900
SENIOR DEPUTY PRESIDENT WATSON: I see.
PN1901
DR KATES: I mean we are a peak council, so our membership is actually for the employer associations but our - - -
PN1902
SENIOR DEPUTY PRESIDENT WATSON: 350,000 - how did you get to the 40,000?
PN1903
DR KATES: Well, we added in the fact that there are firstly some firms that would perhaps have reduced employee numbers by more than one. That our membership is not the full private sector, although it does cover - most of it. So that you could extend it beyond that. And that there are public sector employees as well who are affected perhaps by the safety net decision. And so that beyond the 28,000, which is the 8 per cent of 350,000, we have suggested that there would be some additional on top of that, just using that as the base.
PN1904
SENIOR DEPUTY PRESIDENT WATSON: But your membership of 350,000 employees, what would that be as a proportion of total private sector employee?
PN1905
DR KATES: Well, I would say that it would be between 85 per cent and 90 per cent. We have as our membership - - -
PN1906
SENIOR DEPUTY PRESIDENT WATSON: There is more than that in private sector employment, is there not?
PN1907
COMMISSIONER LEWIN: Are you answering the number of employers, are you?
PN1908
DR KATES: That is right, in terms of just the employers.
PN1909
SENIOR DEPUTY PRESIDENT WATSON: The number of employers, sorry.
PN1910
DR KATES: Yes. No, it is not 8 per cent of employees, it is 8 per cent of employers.
PN1911
SENIOR DEPUTY PRESIDENT WATSON: Yes.
PN1912
DR KATES: So that we are - so we are trying to get an estimate based on if each of those firms just reduce employee numbers by one, what - - -
PN1913
COMMISSIONER LEWIN: Just out of interest, why wasn't the question put to them? Why weren't diametrix actually a part of the survey? The actual employment measures?
PN1914
DR KATES: Why weren't - I am sorry?
PN1915
COMMISSIONER LEWIN: Why weren't the employment measures actually put to the members as part of the survey? Was there a reason for that? The actual numbers? That is to say, how many employees did you have prior to the safety net decision? did you reduce the number of employees? If so, what was the number of employees by which you reduced the size of your work-force?
PN1916
DR KATES: I have a second role besides my cigarette role, and that is that when I do - - -
PN1917
COMMISSIONER LEWIN: That is a cigar question, is it?
PN1918
DR KATES: That would be. And then it is unless there is a really specific reason for it, I never ask a question that someone has to get up from their desk and get a number. So that if they actually have to go somewhere else to get a figure, I - our belief is that the response to it will fall. So that to have asked how many and - - -
PN1919
COMMISSIONER LEWIN: So they don't know how many people they employ?
PN1920
DR KATES: Oh, they know that, that is on the survey.
PN1921
COMMISSIONER LEWIN: Oh, they do know that? Right.
PN1922
DR KATES: But do they remember how many it was - - -
PN1923
COMMISSIONER LEWIN: Wouldn't most of them be able to put that in during the cigarette time?
PN1924
DR KATES: It would push past, I think, our intent to make the survey easy to reply and a quick turn around. I mean, there are so many other questions we would like to ask, which is we are trying to get the ABS to ask them. But they are difficult to find the answers to, and it is extraordinarily costs to get these figures. If I could then just take the Commission to a number of the - academic research that has been part of the - and if I could, in doing so, tender a document which has a number of the papers that we have put to the Commission.
[2.36pm]
PN1925
DR KATES: I do not wish to dwell on these papers, but the first paper is one in which an earlier draft had been presented to safety net in the past, and it is now about to become a paper published in the March issue of the economic record, which I also hasten to note, this being April, it is still a forthcoming issue and we have not yet seen the light of day. But nevertheless we have an earlier copy of the paper which we hope will soon be published. I will rush past all the data and all the econometrics and of the sigmas and gammas and go straight to page 17, and I will just point out there at the top of page 17, which is the page where there is a chart cut off at the bottom, and I just note at the very top it says that the important point here is that figure of minus 0.8, which is an elasticity of demand for labour with respect to real wages.
PN1926
This is right at the top of page 17 and it is the estimate of the elasticity of demand for labour. And what that means is that a 1 per cent increase in the real cost of labour leads to a .8 per cent fall in the level of employment. This is just - - -
PN1927
SENIOR DEPUTY PRESIDENT WATSON: And that is real wages?
PN1928
DR KATES: That is right, your Honour, it is the real wage. And in fact in some respects the surrounding inflation may ameliorate to some extent the effect on employment. But an increase in the real wage without an improvement in productivity behind it will lead to a fall in employment of .8 per cent, a 1 per cent increase in wages, a fall in employment of .8. I would also note that on page 23, that there is a remark in the middle paragraph towards the end of that middle paragraph, where it talks about what the substantial effect of wage cuts is, and what it is basically saying is that the reason that wages have such an impact on employment is because of their effect on the economy overall.
PN1929
So that some of occurs to the direct cost of labour, but most of it occurs through the increases in cost having an effect on the level of aggregate output across the economy.
PN1930
SENIOR DEPUTY PRESIDENT WATSON: And when they refer there to wage cuts, are they talking about real wages or nominal wages?
PN1931
DR KATES: Undoubtedly they are talking of real wage cuts. But, as we say, when a decision is made in the safety net, and we have argued this also in the middle of - in our submission - when decision is made in the safety net, the immediate effect is a real wage increase - is a real wage increase. Whether 12 months later it remains a real wage increase, it will depend on what happens to the price level.
PN1932
SENIOR DEPUTY PRESIDENT WATSON: That means on each of the other 364 days there has been a real wage deduction, does it not?
PN1933
DR KATES: That there is that kind of step-down, that is correct, that there is - that we are in the process of chasing our tail that you can say which came first? What we are actually trying to do is get a situation in which we end up with outcomes that give us a low rate of inflation and outcomes in terms of growth rates in wages that are actually sustainable. And you can only do that if you manage the economy so that over time the growth rate in the amount paid is faster than the growth rate in the CPI underneath.
PN1934
And that only occurs if we can end up with higher productivity. And finally at the end of the paper, it talks about - and this is at the very last page on page 24, the second-last paragraph - and it talks about what happens to the level of employment growth and what is required for that to occur. And what it says there is that given technical progress being 1.2 per cent and the approximate growth to the labour force of 2 per cent per year, that output must increase by more than 3 per cent a year for the unemployment rate to be reduced.
PN1935
So if we are going to get the unemployment rate down, we will need rapid and systemic and continuous improvement in the level of GDP. The next paper is on the economics of the minimum wage, and this too is by Phillip Lewis, and the importance in this paper is that it is a discussion of the impact of the minimum wage, but it is of the minimum wage which is in the derisory, insulting form the ACTU feels, and that is where it is an increase in only the bottom, the minimum wage. And what it talks about is that on page 2 of this, at the very first paragraph, that the 10 per cent increase in average wages reduces employment by about 8 per cent.
PN1936
So thus moderation in average wages increases employment and, with the usual caveat that all other things are equal, unemployment will fall. We then, if we could, just go to the following paper there which is a paper by Matthew James, Mark Wooden and Peter Dawkins, and it is titled: The Minimum Wages and the Fallacy of the Inflated Denominator. And what is the important aspect of this paper from our point of view is that you cannot look at wages in aggregate and assume that you get some kind of understanding of the effects in particular.
PN1937
What this paper endeavours to bring - to focus on is the effect on employment of increases in the minimum wage? And what it says on page 67 at the last sentence of the paragraph, under number 4, and it says:
PN1938
The key question for policy-makers regarding minimum wages, however, is not the aggregate impact but the impact on those who will actually be affected by that wage.
PN1939
That is in our view an extremely important point, because it is that that is the issue. It is not spreading the increase across all employees working on an average cost, whether it be .2 or 1.2 and saying that is the impact. What this is at pains to say is that the key question for policy-makers in regard to the minimum wage is not the aggregate impact, but the impact on those who will actually be affected by that wage.
PN1940
COMMISSIONER LEWIN: Why are the two considerations mutually exclusive?
PN1941
DR KATES: I would not think they are mutually exclusive, but I would say that they - - -
PN1942
COMMISSIONER LEWIN: Isn't the simple, and I would have thought uncontroversial, conclusion in relation to the matter that you have been labouring in this respect is that you have to have regard to both?
PN1943
DR KATES: I would agree, yes, you must have regard to both.
PN1944
COMMISSIONER LEWIN: It is not either or.
PN1945
DR KATES: Yes, I agree, yes. It is not either or but it is important, in our view, that regard is paid to both.
PN1946
COMMISSIONER LEWIN: And would it be correct to say that we have expressed our consideration of both matters historically in our decisions?
PN1947
DR KATES: Yes, it would be correct. What we are endeavouring to show is that that focus is the right focus and we are attempting to disagree with the ACTU that sees only one focus, in our view, as being the particular one, and what we are saying of their submission and their view of costings is that, yes, certainly look at broadly across the macro economics of it, but also try to look at the specifics at the individual workplace. And in fact if I could just briefly turn to what our views upon the needs of the low-paid, I would add one point in particular in regard to the needs of the low-paid, which the ACTU has made a great deal of focus on - has had a great deal of focus on, and the point we would make is this: the needs of the low-paid and the capacity of a business to afford higher labour costs are absolutely and totally unrelated.
PN1948
There may well be needs of the low-paid that do go unmet and there is no question at all that we would like to see everyone with higher levels of income, and that is real incomes, when they can be afforded. But the needs of the low-paid and the ability of a business to afford to pay higher wages are just simply uncorrelated. There is no relationship between the two that the ACTU can present data on needs, but has told you nothing about the ability of the employers of those employees - it has told you nothing about those employers' ability to afford to pay higher wages.
PN1949
So that what they say in terms of the needs of low-paid does not address the other aspect of this case, and that is what is the effect when you grant 6 per cent increases or 4.9 per cent increases to wage and salary earners. And then the last piece of academic research I would look at, if I might, is the final article in this exhibit ACCI10, and this is exhibit in the article on job security in the 1990s, how much is job security worth to employees? Now, what we say is that raising the cost of labour will, other things being equal, lead to the creation of fewer jobs, and that we also note there are always other things that happen.
PN1950
So generally you can have increases to the real wage and the economy can continue to grow. But what we are trying to do is focus on the specifics of individual employees, again we note with the needs of the low-paid, someone's needs has no relationship with their employer to pay higher wages. Now we are talking - now we would like to focus on what is the effect on job security and how at different pay levels, how the security of the job has a different kind of sense and importance and dynamic. And the point we make is that employees want security. They obviously want high incomes but they also want job security.
[2.51pm]
PN1951
And this paper, it is by Jonathan Kelly, M.D.R. Evans and Peter Dawkins, attempts to estimate the trade-off between the value of personal job security and higher wages for employees. And what the author has tried to do is to test the importance of job security within the context of income received. And on page 4 of this paper, under the heading of "Effect on satisfaction with pay" it sets the matter straight, and it asks, does job security matter. And it goes through various approaches which might be taken in terms of real classical models or other models. But it then says, well, workers may take a wider perspective on what they want from their jobs.
PN1952
In the extreme a traditional communitarian models suggested workers are happy and contribute more when they feel secure and integrate into the companies in which they work. So what these three researchers did was they devised a mechanism to test whether job security mattered and they attempted to estimate the extent to which job security was an important criterion. And there at the bottom of that column on page 4 is shown the format of the question, and there is this footnote 8, and if you go to the end note, I will just read that because it explains how the model works. It says:
PN1953
The model satisfactorily pays a function of hourly pay, pays squared to capture the declining margin in utility pay, job security, job characteristics, part time ..... employment, self-employed, job complexity, dirt and danger work, and control there was age, sex, education, urban and married.
PN1954
And what they were trying to do is see which of those variables really mattered for the satisfaction of employees. And what they found was this. That the satisfaction of employees was greatly improved by job security and, in fact, if I could just take you to the last paragraph on page 4, what it says is:
PN1955
But strikingly satisfaction with pay and standard of living is also strongly influenced by job security. Securities impact is fully two-thirds as large as pays as shown by security standard effect of 1.8 compared to pays 1.27 in a multiple progression analysis.
PN1956
And then continues at the top of page 5:
PN1957
Thus job security is a very important factor in determining worker satisfaction with their financial situation. Having a secure income is fully two-thirds as important as having a large one. Of the many other aspects of work and background in the model nothing else has any substantial impact on satisfaction of pay.
PN1958
In other words, it is security that is an increasingly important variable, increasingly important aspect of the job, and as that table which unfortunately is dimmed by the photocopier, but if you look at that section on page 5 in the dark and the first point that is made above it says:
PN1959
Job security has a high value to workers, especially low-paid workers. For them security is equivalent to a very substantial part of their pay. Other examples of combinations of pay and security, they are equally attracted to workers are given in the realms of table 1.
PN1960
And beneath that what we have is a table, and what we have there, and it is clearly the actual - we have reproduced this table in our documentation as part of our submissions in our original written submissions, but trying to read through that, high security, on the left. If you have a high security job that was worth $10. And you took $10 an hour and received $10 an hour, it would be equivalent to you to be the job of average security and be paid $12.07 an hour. Or if you are in a job with low security to have a payment of $14.44 per week.
PN1961
What is clear as the data show is that job security is of particular importance to those on low pay. It is compared from the first branch, the ones with the lowest pay, the difference - the increase you would have to pay to move from a high security job to a low security job is 44.4 per cent. You would need an increase of 44.4 per cent to be equally content with your situation in moving from a high to a low security job. And it is of particular importance to those on low pay so as you move down the column you find that for those who begin on $20 in a high security environment the difference it makes between high security and low security is not as pronounced.
PN1962
So the conclusion we would draw in this, it is all very well for the ACTU to seek on behalf of the workforce an increase in wages particularly aimed at the low paid. But the question remains whether those who receive the increase are indeed better off and feel better off if their jobs becomes less certain. That the insecurity that occurs through higher increases in wages, and particularly for those of the low paid, is not and may not be balanced by the greater insecurity of job which we have tried to demonstrate, jobs have become less secure in the past year and the past two years, and this greater insecurity has come at a very large cost to those on low pay. If there are any other questions, I will just leave it here.
PN1963
SENIOR DEPUTY PRESIDENT WATSON: In having regard to the point you make about the individual, focus on the individual affected by a safety net adjustment, the proposition at page 68 of the paper, the James, Wooden and Dawkins paper, that cites US research showing an aggregate elasticity of negative .1 associated with elasticity for those actually affected of negative .91. That implies a positive elasticity for those not affected, does it not, so there is a balancing of employment effects between those groups of employees. Mathematically if the total is negative 1, and one group is negative .92, the other group must be positive.
PN1964
DR KATES: The other would be?
PN1965
SENIOR DEPUTY PRESIDENT WATSON: Positive, the elasticity.
PN1966
DR KATES: Well, I would have to have a closer look at this but I would have just thought that this is the range, so that - I will have a look at it, but I think if we are going to consider the issues in terms of the Australia data, the data in the Philip Lewis paper, previous one, which has attempted to summarise all of the data in Australia, and comes to the estimate of minus .8 - - -
PN1967
SENIOR DEPUTY PRESIDENT WATSON: Well, James, Wooden and Dawkins seem to suggest again on page 68 that the international information is of little relevance to the Australian debate and the two attempts that they are aware of minimum wages studies is that Australian data reveal more about the difficulty of conducting the study than they do about the elasticity of labour demand.
PN1968
DR KATES: If I understood - - -
PN1969
SENIOR DEPUTY PRESIDENT WATSON: It is the first paragraph under point 5, what evidence should be relied on for Australia, and the conclusion seems to be none.
PN1970
DR KATES: Yes, well, I am sure that Philip Lewis in his paper would agree with that, that that is why has attempted to re-estimate the minimum wage impact in Australia so that - - -
PN1971
SENIOR DEPUTY PRESIDENT WATSON: Lewis did nothing more than cite what he understood to be the outcome of earlier studies, isn't that the case?
PN1972
DR KATES: Well, Lewis has dealt with the other studies that have been undertaken in Australia, not - I mean, what he was saying was that other Australian studies have come to a figure of minus .8 but they have come to it for the wrong reasons. I have done it in the right way and I still come to figure minus .8. So that in Australia the elasticity is a .8 per cent fall. So for every dollar increase in wages upon data of a person who has a job - sorry, 1 per cent, that is .8 of a per cent of a person who has a job.
PN1973
JUSTICE GIUDICE: Well, for the moment, Dr Kates, you can have the last word on that. Is that a convenient time to adjourn.
PN1974
MR BARKLAMB: Your Honour, just briefly before we cease, I might provide an indication that I expect to take about another 20 minutes when Dr Kates ceases his submission.
PN1975
JUSTICE GIUDICE: Yes. You have concluded your submissions, Dr Kates, have you?
PN1976
DR KATES: Yes, I have. Yes, thank you, if the Commission pleases.
PN1977
JUSTICE GIUDICE: Well, we will adjourn now until 10 o'clock on Monday morning.
ADJOURNED UNTIL MONDAY, 8 APRIL 2002 [3.03pm]
INDEX
LIST OF WITNESSES, EXHIBITS AND MFIs |
EXHIBIT #ACCI5 TRANSCRIPT OF INTERVIEW BY THE TREASURER DATED 04/04/2002 PN1364
EXHIBIT #ACCI6 PRIVATE NEW CAPITAL EXPENDITURE SERIES PN1373
EXHIBIT #ACCI7 NATIONAL INSTITUTE OF LABOUR STUDIES RE LABOUR MARKET PN1401
EXHIBIT #ACCI8 COMPILATION OF EXHIBITS PN1563
EXHIBIT #COMMONWEALTH2 DOCUMENT SUPPLIED BY MS GABBITAS PN1589
EXHIBIT #ACCI9 TABLE PN1847
EXHIBIT #ACCI10 ACADEMIC RESEARCH PAPERS PN1925