Transcript Document

Setting Australia’s minimum wages:
2007 and beyond
Professor Ian Harper
Chair
Australian Fair Pay Commission
23 July 2007
A new approach to setting minimum wages
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AFPC — a new economic institution
From an adversarial system to a consultative one,
supplemented by independent research and analysis
For the first time, those affected by the Commission’s
decisions can have a direct say in what minimum
wages should be
Minimum wage-setting added to mix of policy
instruments focussed on the national economy
A focus on jobs
Like interest rates, minimum wages influence important
decisions in our economy
• they can affect employment (especially for the low
paid), the rate of inflation and competitiveness of the
Australian economy
• minimum wages can affect labour supply as well as
labour demand
Workforce participation — one of the key drivers of our future
economic prosperity
Having a job is widely recognised as a guard against poverty
and disadvantage
Remit
The Commission exercises its wage-setting powers by:
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adjusting the standard Federal Minimum Wage (FMW)
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determining or adjusting special FMWs (e.g., for
workers with a disability)
determining or adjusting basic periodic rates of pay in
the Australian Pay and Classification Scales (the “Pay
Scales”)
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determining or adjusting basic piece rates of pay
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determining or adjusting casual loadings
Objective and constraints
The Commission’s objective specified in legislation is to
promote the economic prosperity of the people of Australia
In exercising its powers, the Commission must have regard to:
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the capacity for the unemployed and low paid to obtain
and remain in employment;
employment and competitiveness across the economy;
providing a safety net for the low paid; and
providing minimum wages for junior employees,
employees to whom training arrangements apply and
employees with a disability that ensure those
employees are competitive in the labour market
2007 Minimum Wage Decision
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Submissions called 1 December 2006
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Submissions closed 30 March 2007
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Decision announced 5 July 2007
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Implementation 1 October 2007
(first pay date on or after)
The 2007 Minimum Wage Decision
An increase of:
$10.26 per week for people earning up to $700 per week
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covers 850,000 Australian workers - about 8% of the
workforce
$5.32 per week for people earning $700 per week and above
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represents another 350,000 workers or a further 3% of
the workforce
Increases flow on to junior employees, employees to whom
training arrangements apply and employees with a disability
Key considerations
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Establishes mid-year timetable for reviews going forward
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A second real wage increase for Australia’s lowest paid
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Commission concerned about impacts on inflation, jobs and
interest rates
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Maintains social safety net and incentives to seek and
remain in employment
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Recognises impact of most severe drought in more than a
century
Deferral granted for farm businesses
Farm businesses must be in receipt of Exceptional
Circumstances Interest Rate Subsidy (ECIRS)
Farm business in receipt of an ECIRS are:
• those most severely affected by drought
• most likely to suffer detriment from increases in labour
costs at this time, resulting in job losses
Deferral for a maximum of 12 months or until a farm business
ceases to qualify for ECIRS, whichever comes first
Not applicable to FMW or special FMWs
Real wage increases across two decisions
Minimum wage increases
2006
decision
2007
decision
Both
decisions
CPI
Inflation
4.8
1.6*
6.5
C14
5.65
2.00
7.76
C13
5.48
1.94
7.53
C12
5.23
1.86
7.19
C11
5.03
1.79
6.92
C10
4.76
1.69
6.53
C9
4.59
1.64
6.31
C8
4.39
1.59
6.05
* Forecast from December 2006 to October 2007
Both the 2006
and 2007
decisions
provide real
wage
increases to
Australia’s
lowest paid
Lower EMTRs
Low-paid
Australians
face lower
EMTRs
following
the 2007/8
Budget. On
average,
they retain
74% of any
increase
compared
to 70% in
2006.
Disposable income
Disposable
income for
those ‘Out of
work’ and at
100% and
150% of the
standard
FMW, July
2007
Henderson Poverty Line (HPLs)
Income unit type
Disposable income as
% of HPL
50%
100%
150%
FMW
FMW
FMW
Single adult, no children
1.06
1.30
1.78
Single parent, one child
1.19
1.46
1.81
Single parent, two children
1.13
1.36
1.65
Single earner couple, no children
1.16
1.30
1.40
Single earner couple, one child
1.19
1.34
1.45
Single earner couple, two children
1.14
1.27
1.37
Dual earner couple, no children
nm
1.22
1.36
Dual earner couple, one child
nm
1.21
1.37
Dual earner couple, two children
nm
1.17
1.31
Standard
FMW well
above HPL for
all household
types
A balancing act
The Commission took into account:
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10-month period since the last pay increase
the sensitivity of low-paid employment to changes in
wage levels
incentives for individuals to seek and remain in paid
employment
continued strong performance of the economy and
labour market (albeit not uniform)
movements in consumer prices
requirement to provide a safety net for the low paid
Who are the low-paid?
Lower-paid workers as a group (both FT and PT) are relatively
concentrated in lower-income households
But 20 per cent of low-paid employees live in households in the
top three deciles of the income distribution
Many low-paid workers are either:
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partnered to people earning above minimum wages; or
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single people living with other employed people
(e.g., young people living at home with their parents)
Characteristics of low-paid workers
Low-paid adult workers are more likely than the general
workforce to have the following characteristics …
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employed in relatively low-skilled occupations
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lower levels of education
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relatively young (21 to 24)
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female
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not married
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low equivalent household disposable income
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employed on a casual basis
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migrants from a non-English speaking background
Award- or Pay Scale-reliant industries
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Accommodation, cafes & restaurants (37.6%)
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Retail Trade (19.1%)
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Property and Business Services (18.2%)
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Health and Community Services (12.8%)
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Personal and Other Services (12.3%)
Source: ABS Employee Earnings and Hours Survey, unpublished data
Consultation (1) – 2007
The Commission has:
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established a Business Consultative Group
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implemented a Research Consultative Group
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formed specialist Roundtables (e.g., for workers with a
disability)
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commissioned research into stakeholder responses to
the Commission’s procedures and 2006 Decision
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conducted face-to-face meetings with key
stakeholder representatives
Consultation (2) – 2007
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Program of targeted focus groups in metropolitan and
regional areas across Australia speaking to:
Low paid
Employers
Juniors
Unemployed
Indigenous
Culturally and Linguistically Diverse
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Internet ‘bulletin boards’
national facilitated discussion groups
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Site visits
Submissions (1) – 2007
National submissions campaign implemented:
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posters and brochures encouraging community
submissions distributed to more than 7000 community
locations across Australia including:
• local libraries
• local Councils
• community centres
• neighbourhood houses
• job network providers and
• community legal services
Online submission form developed and available at
www.fairpay.gov.au
Submissions (2) – 2007
Commission received 62 submissions:
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employer organisations
employee organisations
community organisations
individuals
businesses
professional/education
government agencies
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6
11
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3
3
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Commissioned research
2006:
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2007:
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minimum wages and employment
characteristics of low-paid employees
characteristics of employers of the low paid
interactions between minimum wages and the
tax/transfer system
monitoring strategy to determine impact of 2006
Decision
economic and social circumstances of young people
aged 15-20
Monitoring strategy
Two research projects commissioned:
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identify relevant existing data and how these should be
used to monitor wage decisions
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analyse the impact of our decisions at an aggregate as
well as an industry, regional and (in some cases)
workplace level
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provide tools to identify emerging trends in
employment and wages
Pay scales
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pre-Work Choices awards contained all minimum rates
of pay and conditions of employment and ratified and
published by AIRC
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currently 3,286 awards and approx 105,000 Pay
Scales
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many awards and Pay Scales are redundant
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government has been publishing Pay Scale summaries
since Commission’s first decision
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process to create and publish new Pay Scales agreed
and commenced
Priority Pay Scale list established
Relevant pre-reform wage instrument selected
Key stakeholders contacted. Website notification of commencement of process
Options for Pay Scale drafting identified:
Union/employer organisation, AFPC Secretariat, suitably
qualified/experienced bodies
Draft prepared and circulated to key stakeholders
Key stakeholders invited to participate in round table.
Draft agreed between the parties
Draft not agreed between the parties
Commission to make preliminary decision on
outstanding issues of difference, informed by
the parties’ views, legal opinion, consultation,
further submissions and legal advice
Legal opinion sought on compliance of the draft Pay Scale with legislation
Draft circulated and posted on website. Call for submissions
Commission determines new Pay Scale, informed by submissions
and further discussion with stakeholders if required
New Pay Scale published on website and
Workplace Authority advised
Process to
create and
publish new
pay scales
Pay scales - rationalisation
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Commission to look into rationalisation of pay scales
Discussion paper released in September
incorporate review of wages for juniors and trainees
follows Award Review Taskforce report
What principles should guide the AFPC?
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How important are pay scales in securing economic
prosperity for the Australian people?
What role should rationalised pay scales play in a
modern, flexible labour market?
What type of organisation?
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a focus on unemployed and low-paid Australians and
their employers
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decisions are evidence-based, informed and balanced
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procedures are open, transparent and independent
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emphasis on research and analysis
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a respected authority on the link between
employment and minimum wages in an Australian
context
to earn public respect and professional standing
equivalent to the Reserve Bank of Australia
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