Posted: June 07, 2005

$17 per week but what next?

This morning the Australian Industrial Relations Commission (AIRC) announced a safety net adjustment of $17 per week to all award rates and allowances. It is likely to be the final Safety Net Review decision of the Commission before the concept of wage justice is jettisoned and responsibility for setting the minimum wage shifts to the Howard Government’s proposed Fair Pay Commission (FPC).

Today’s adjustment is an increase of 3.6 per cent in the minimum wage and falls between the $10 per week increase (in a limited range of award classifications) sought by the Australian Chamber of Commerce and Industry (ACCI) and the $26.60 per week increase in all award rates sought by the Australian Council of Trade Unions (ACTU). While the ACTU was pleased to have achieved a “decent increase for workers”, an ACCI spokesperson told the ABC that the business group considered the increase to be “unfortunately large”. He claimed it would place upward pressure on wages and prices, which will in turn cause upward pressure on interest rates. It seems that the interest rate scare campaign that was the stuff of the 2004 Federal Election scrap ain’t over yet.

So what did the Commonwealth (who argued for an $11 per week increase restricted to low paid workers) make of the decision? The Industrial Relations Minister, Kevin Andrews, wasn’t commenting but in their Decision Summary, the Commission made, at times stinging, criticisms of the Commonwealth’s evidence. Here is an audit:

1. The Commonwealth was wrong to suggest that Australia now has the highest minimum wage compared with median earnings in the OECD. This has been the case for much of the last twenty years but the Commonwealth conveniently ignored the fact that between 1996 and 2004 the ratio between the minimum wage and median earnings declined from 60.6 per cent to 58.4 per cent.

2. The Commonwealth submitted that the Commission has not placed enough emphasis on employment effects when deciding on the level of safety net adjustments. However, in 2004 they relied upon a study showing an elasticity of labour demand of –0.21 per cent while “this year it urged us to accept a study which showed an elasticity of –0.63 per cent”. Thus on the Commonwealth’s submission this year, the AIRC would have been wrong to accept the evidence it tendered in last year’s review.

3. In light of the growth in employment over the last eight years it would be difficult to accept that the Commission's safety net adjustments have been excessive even if employment was the only matter the Commission had to take into account in maintaining the safety net.

4. The Commonwealth was unable to provide basic, and highly relevant, data requested by the Commission relating to the needs of the low paid and the proportion of the workforce who receive the minimum wage at various times:

We requested the Commonwealth to provide data concerning the proportion of the workforce to which the safety net adjustments applied in 1997 and in 2004. The Commonwealth was unable to do so. We also asked the Commonwealth to provide data concerning the proportion of the workforce to which the minimum wage adjustment applied in 1997 and 2004. Again, the Commonwealth was unable to supply the information. It is a matter of significance that while the Commonwealth has criticised the Commission's past decisions because of their employment effects, the most basic of information about safety net adjustments and the minimum wage-how many people are affected by them-is apparently not available to the Commonwealth.

5. The Commonwealth’s contention that if safety net adjustments are too high they remove or detract from the incentive to bargain was not supported by their own figures. This data suggests that the safety net adjustments over recent years have not been inconsistent with the continued growth of bargaining in the industries (such as retail trade, cafes and restaurants and community services) in which award reliance is relatively high.

6. Finally, both the Commonwealth and ACCI argued that any safety net adjustment should be confined to low paid workers. However the Commission noted that the real wages of workers at higher award levels have risen more slowly than both the minimum wage and Average Weekly Ordinary Time Earnings (AWOTE) for full-time adults. It concluded:

Employees classified at those levels who are dependent on safety net adjustments for increases in wages have suffered a significant loss of relativity whatever measure is adopted. It would be inconsistent with our obligation to maintain the safety net to withhold or reduce the amount of the adjustment at the higher classification levels. The adjustment will apply to all award rates and allowances on the same basis as in previous years.

In reading the AIRC’s full judgement I was reminded of just how important the qualities of accountability and transparency are to a just industrial relations system. In the reform process, these were the qualities that should have been preserved at all costs but under the proposed Fair Pay Commission they will be junked.

Under the current system, a range of interested parties and expert witnesses present evidence in the annual Safety Net Review and the Commissioners release a detailed evaluation and assessment of this evidence in explaining how they reached their decision. By contrast, when responsibility for determining the minimum wage (and the minimum wage only) shifts to the Fair Pay Commission, the decision will be made by a panel appointed by the Government and will be about as transparent as Reserve Bank Board deliberations on interest rates. The Government has flagged that the FPC will consist of five members – a “prominent person” (?) as chairperson, a business representative, a union representative and two labour economists. The majority of appointments will be sympathetic to the Government line and will argue that the rate of minimum wage growth needs to slow down relative to the moderate growth that has occurred under AIRC safety net adjustments. As Bill has argued in his piece for New Matilda the FPC will not cut nominal wages but they will allow the real wage to fall through infrequent adjustments.

One of the myriad of concerns about the proposed FPC framework is that it will only make ‘regular’ adjustments and Howard and Andrews regularly refuse to define what ‘regular’ means. In this respect, today’s Safety Net Review decision marked the last step along what Bill described as Australia’s “labour-specific, union oriented arbitration and conciliation processes”. The FPC marks a shift to industrial relations American style.

In the United States the minimum wage is a provision of the Fair Labor Standards Act (FLSA). Minimum wage increases are passed at the will of Congress as amendments to the FLSA. Original proposals for the FLSA provided for a commission that would set the minimum wage after a public hearing and consideration of cost-of-living estimates provided by the Bureau of Labor Statistics. In this way, the minimum wage would have been updated according to changes in the standard of living and inflation. However, the version of the FLSA that passed set a specific rate and had no provisions regarding updating the minimum wage. Therefore, any increases in the minimum wage are based solely on the political climate and congressional agreement that an increase is needed. The last time congress reached such a conclusion was in 1996-97 when they increased the minimum wage to $5.15 per hour. This is 26 per cent lower in real terms than the 1979 minimum wage. In 2003, Washington’s progressive Economic Policy Institute argued that a full-time worker (working 2,080 hours a year) earning $5.15 an hour would earn $10,712 a year, well below the US 2003 federal poverty line of $14,824 for a family of three.

In Australia, it seems that the only difference will be that any increases in the minimum wage will be based on agreement amongst (sympathetic) government appointments that an increase is needed. Don’t hold your breath for another adjustment and don’t forget what the current system has delivered for low paid workers.

Blog entry posted by bill