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Submission
to the
Fair Work Australia
Annual Wage Review
2010
19 March 2010
Australian Government Submission
Table of Contents
Chapter 1: Introduction ..............................................................................................5
Introduction................................................................................................................5
A new, fair workplace relations system.....................................................................6
Establishment of Fair Work Australia and the Minimum Wage Panel .................7
The National Minimum Wage (NMW) order........................................................7
Balancing economic factors and fairness - new legislative parameters.................8
The coverage of the Panel’s decision.......................................................................10
Award coverage .......................................................................................................11
Changes in award coverage over time .................................................................14
Government Position ...............................................................................................15
Chapter 2: Economic environment ..........................................................................17
Introduction..............................................................................................................17
Economy ..................................................................................................................17
Domestic outlook .................................................................................................17
International outlook............................................................................................19
Employment.........................................................................................................20
Wages and inflation .............................................................................................21
The Government’s response to the global financial crisis .......................................23
The Government’s medium term fiscal strategy and the design of its fiscal
stimulus ................................................................................................................23
Impacts of the fiscal stimulus ..............................................................................24
Conclusion ...............................................................................................................25
Chapter 3: Labour market developments ..............................................................27
Introduction..............................................................................................................27
Overview..................................................................................................................27
Employment.............................................................................................................28
Unemployment.........................................................................................................31
Participation rate ......................................................................................................31
Key groups in the labour market..............................................................................33
Youth (15-24 years) .............................................................................................33
The long-term unemployed..................................................................................34
Lone parents.........................................................................................................35
Less skilled group ................................................................................................36
Discouraged jobseekers .......................................................................................37
State labour market differences ...............................................................................37
Regional labour market developments.....................................................................38
Regional disparity and disadvantage ...................................................................39
Conclusion ...............................................................................................................40
Chapter 4: Social inclusion and workforce participation ......................................43
Introduction..............................................................................................................43
The Australian Government’s social inclusion agenda ...........................................44
Social inclusion and workforce participation ..........................................................46
The extent of social exclusion in Australia..........................................................48
Minimum wages and social inclusion..................................................................48
The importance of low paid work to unemployed persons and persons not in the
labour force ..............................................................................................................49
Labour market outcomes of non-employed persons............................................50
Low paid transitions.............................................................................................52
Wage transitions of casual and non-casual low paid workers .............................54
Australian Government Submission
International research conducted into earnings mobility .........................................54
The impact of minimum wage increases on employment .......................................55
Transfer payments, earnings and incentives to work...............................................56
Single earner families ..........................................................................................57
Second earner households....................................................................................61
Conclusion ...............................................................................................................64
Chapter 5: Relative living standards and the needs of the low paid .....................65
Introduction..............................................................................................................65
What does this parameter mean in relation to setting minimum wages?.................65
Recent trends in relative living standards ................................................................66
Prices – Consumer Price Index and Analytical Living Cost Indices ...................66
Minimum wage outcomes....................................................................................69
Inequality .................................................................................................................73
Earnings inequality ..............................................................................................74
Income inequality.................................................................................................76
Who are the low paid? .............................................................................................78
Characteristics of low paid workers.....................................................................79
Incidence of low paid employment......................................................................82
Household income distribution ................................................................................82
Means to address relative living standards and needs of low paid ..........................83
Welfare improving potential of minimum wage increases ..................................84
The tax-transfer system........................................................................................85
Conclusion ...............................................................................................................89
Chapter 6: Equal remuneration ...............................................................................91
Introduction..............................................................................................................91
Equal remuneration provisions under the Fair Work Act 2009 ...............................91
Principles relating to the safety net of minimum wages and conditions..............92
The expansion of the equal remuneration principle to include equal remuneration
for work of equal or comparable value ....................................................................93
Latest gender pay gap data.......................................................................................95
Pay gap trends ......................................................................................................95
Average Hours .....................................................................................................96
Method of setting pay ..........................................................................................97
State/Territory ......................................................................................................98
Occupation ...........................................................................................................99
Industry ..............................................................................................................100
Age.....................................................................................................................101
Conclusion .............................................................................................................101
Chapter 7: Sub-minimum wages ............................................................................103
Introduction............................................................................................................103
FWA’s obligations under the FW Act ...................................................................103
Review of apprentice and trainee award wages and conditions ............................105
Australian Government Submission 5
Chapter 1: Introduction
Introduction
1.1 The 2010 Annual Wage Review marks the first minimum wage review
conducted under the Australian Government’s new workplace relations
system. The Fair Work Act 2009 (FW Act) provides the Minimum
Wage Panel (the Panel) with new, balanced legislative parameters to
have regard to when setting minimum wages. The information contained
in this submission is structured according to those parameters.
1.2 Further, this review follows the Australian Fair Pay Commission’s
(AFPC’s) 2009 decision not to increase minimum wages. While the
AFPC was faced with the most challenging economic environment to
confront a minimum wage-setting body for decades, the Government
considers the AFPC’s decision did not strike the right balance.
1.3 In its post-Budget submission to the 2009 review, the Government
argued for a considered rise in the low income safety net and against a
reduction in the real minimum wage. The Government is concerned that
the pay of low income working Australians has now gone backwards in
real terms.
1.4 As explained in Chapter 5 of this submission, recent federal minimum
wage decisions mean that federal minimum wages have declined in real
terms over the last two years. The real value of the Federal Minimum
Wage (FMW) fell by 2.0 per cent following the last two decisions. For
those on minimum wages above the FMW, real wages have fallen by
even more.
1.5 The Government believes that the approach to minimum wage setting
must be both economically responsible and fair. As noted in Chapter 4,
considered increases in minimum wages can allow low income working
Australians to share in the benefits of economic growth while ensuring
employment growth can continue.
1.6 The Government notes that low paid jobs are an important entry point
into the labour market and for many a stepping stone into higher paid
and more stable forms of employment. A significant number of low paid
6 Australian Government Submission
workers, however, remain in low paid jobs over time. These individuals
have a right to a fair wage that delivers a decent standard of living.
1.7 Chapters 2 and 3 of this submission present the Panel with the most up-
to-date economic and labour market information and forecasts. The
Government submits that during periods of recovery and growth those at
the lower end of the income scale should also receive a share of the
benefits of the economic recovery. This did not occur under the
previous Government. Over the last 10 years, the FMW has only
increased by 2.3 per cent in real terms.
1.8 Moreover, Household, Income and Labour Dynamics in Australia
(HILDA) data reveal that the incidence of low paid employment
increased between 2003 and 2007 (see chapter 5), despite strong
economic growth during this period, with 14.6 per cent of all employees
classified as low paid in 2007 compared with 10.6 per cent in 2006.
1.9 The Government will update the Panel on the latest economic
information and forecasts and budget measures following the 2010-2011
Budget.
1.10 In light of the recent decline in the real and relative value of minimum
wages and after considering the legislative parameters and evidence
base, on balance, the Government urges the Panel to grant a considered
real increase in minimum wages that at a minimum reflects the cost of
living increases since the last minimum wage rise in 2008.
A new, fair workplace relations system
1.11 The new Fair Work system commenced in full on 1 January 2010. This
marks an important step in Australia’s workplace relations laws. The
Fair Work system brings fairness to Australia’s workplace relations
system.
1.12 The following section provides an overview of the new Fair Work
system protections for minimum wages, including a brief outline of Fair
Work Australia’s and the Panel’s minimum wage obligations.
Australian Government Submission 7
Establishment of Fair Work Australia and the Minimum Wage
Panel
1.13 Fair Work Australia (FWA) was established under the FW Act and
began operation on 1 July 2009. FWA replaces the Australian Industrial
Relations Commission (AIRC), the Australian Industrial Registry, the
AFPC and assumes some of the responsibilities of the former Workplace
Authority.
1.14 The Panel within FWA replaces the AFPC as the new specialist body
responsible for annually reviewing and setting minimum wages in
Australia.
The National Minimum Wage (NMW) order
1.15 The NMW order sets minimum wages for employees who are
award/agreement free. An employee is award/agreement free if the
employee is not covered by a modern award, enterprise agreement,
transitional instrument or Division 2B State instrument.1
1.16 The NMW order must be set in each annual wage review.2 Each order
must set: 3
• the NMW for all award/agreement free employees (other than
junior employees, employees to whom training arrangements
apply and employees with a disability4);
• special NMWs for all award/agreement free junior employees,
employees to whom training arrangements apply and employees
with a disability;
• the casual loading for award/agreement free employees who are
casual employees.
1.17 There is an exception to the usual requirement that the NMW order set
special NMWs for all award/agreement free junior employees,
employees to whom training arrangements apply and employees with a
1
Section 12 of the FW Act, item 32 of Schedule 3 and item 47 of Schedule 3A to the Fair Work (Transitional
Provisions and Consequential Amendments) Act 2009 (T&C Act).
2
Section 285 of the FW Act.
3
Subsection 294(1) of the FW Act.
4
Subsection 294(3) of the FW Act.
8 Australian Government Submission
disability for the first annual wage review.5 In the first annual wage
review, FWA is only required to set a special NMW for a class (or sub-
class) of employees if there is already a special NMW for those
employees in the transitional NMW order.6
1.18 The transitional NMW order sets two special NMWs:
• for employees with a disability (other than employees with a
disability who are junior employees or employees to whom
training arrangements apply) where the effects of their disability
do not impact on their productive capacity.
• for employees with a disability in open employment (other than
employees with a disability who are junior employees or
employees to whom training arrangements apply) who are unable
to perform the range of duties to the competence level required
because of the effects of disability on their productive capacity.
1.19 The transitional NMW order does not set special NMWs for junior
employees and employees to whom training arrangements apply.
1.20 In the first annual wage review, therefore, FWA is only required to set a
special NMW for employees with a disability (other than employees
with a disability who are junior employees or employees to whom
training arrangements apply) – although the FW Act does not preclude
FWA also setting special NMWs for the other classes as well. If FWA
does not set a full range of special NMWs for all classes in this review,
the FW Act requires the President to establish a process for setting
special NMWs for the other classes in the second annual wage review to
occur in 2011.7
Balancing economic factors and fairness - new legislative
parameters
1.21 When setting and varying minimum wages in annual wage reviews, the
Panel must have regard to the minimum wages objective.8 The
minimum wages objective forms a set of legislative parameters that the
5
Subitem 4(1) of Schedule 9 to the T&C Act.
6
Subitem 4(2) of Schedule 9 to the T&C Act.
7
Subitem 4(3) of Schedule 9 to the T&C Act.
8
Section 284 of the FW Act.
Australian Government Submission 9
Panel must take into account. Specifically, the Panel is required to
‘establish and maintain a safety net of fair minimum wages’ taking into
account:
(a) the performance and competitiveness of the national economy,
including productivity, business competitiveness and viability,
inflation and employment growth;
(b) promoting social inclusion through increased workforce
participation;
(c) relative living standards and the needs of the low paid;
(d) the principle of equal remuneration for work of equal or
comparable value; and
(e) providing a comprehensive range of fair minimum wages to
junior employees, employees to whom training arrangements
apply and employees with a disability.
1.22 These new legislative parameters differ from the previous parameters of
the AFPC in that they provide a more balanced set of criteria for the
Panel to consider that take account of the economic environment but
also the key concepts of fairness, social inclusion and relativities with
respect to living standards.
1.23 In contrast, the previous parameters in place for minimum wage reviews
conducted by the AFPC were not balanced and fair.
1.24 The factors that the AFPC were required to take into account placed
particular emphasis on the consideration of employment impacts if
minimum wages are increased. The AFPC’s remit did not focus on
fairness or relative living standards of the low paid in comparison with
the rest of the nation. It is not surprising therefore that minimum wages
during the period of the AFPC fell in real terms.
1.25 The Government believes that the new Fair Work parameters provide a
balance which rightfully emphasises fairness as a key principle in
minimum wage setting.
1.26 The new system gets the balance right between economic factors –
employment growth, productivity and inflation – and considerations of
10 Australian Government Submission
fairness - social inclusion, relative living standards and needs of the low
paid.
1.27 Given that this will be the first minimum wage setting decision of a new
body with new legislative parameters, it is important that each parameter
is considered carefully and fully. The outcome of the 2010 Annual
Wage Review will likely provide the basis for and influence decisions of
future wage reviews.
The coverage of the Panel’s decision
1.28 The latest ABS data show that approximately 1.45 million (or
16.5 per cent) Australian employees were award-reliant as at August
2008. The Panel’s decision directly affects the wages of the vast
majority of these employees, most of whom are under federal
jurisdiction following the creation of the national workplace relations
system.
1.29 A small number of award-reliant employees will continue to receive
minimum wage increases granted independently within state workplace
relations jurisdictions (namely award-reliant employees in
unincorporated enterprises in Western Australia, state and local
government award-reliant employees in New South Wales, Queensland,
South Australia and Western Australia and state government award-
reliant employees in Tasmania).
1.30 The NMW and modern award minimum wages act as an actual floor for
wage rates under a range of industrial instruments including enterprise
agreements, transitional instruments and Division 2B State instruments.
1.31 The Panel’s decision, however, also affects wages indirectly through
‘flow-ons’ to other employees and by acting as a floor for wage
increases (as well as being a floor for actual rates).
1.32 According to the Department of Education, Employment and Workplace
Relations’ (DEEWR) Workplace Agreements Database, around
23 per cent of current federal enterprise collective agreements (CAs)
covering 20 per cent of employees employed under such agreements,
link terms and conditions in some form to annual wage review
outcomes. It is important to note, however, that only 13 per cent of
Australian Government Submission 11
federal CAs, covering six per cent of employees employed under such
agreements, automatically ‘flow on’ annual wage review decisions. For
the remainder, conditions and/or qualifications of some type apply.
1.33 Minimum wage increases can also act as a floor for workplace
bargaining. A higher minimum wage increase may encourage higher
wage claims and outcomes in workplace bargaining negotiations.
1.34 The outcomes of negotiations of the larger federal CAs are also a major
factor in overall federal agreement outcomes. There are 133 large CAs,
each of which covers 500 or more employees, which reach their nominal
expiry data and are likely to be renegotiated in 2010. These include
negotiations in the manufacturing industry (Hawker de Havilland,
Fairfax Printers, Amcor and Visy), transport (Qantas, TNT and Toll),
retail (Myers, Woolworths, Best & Less, Harris Scarfe, Coles Liquor,
Suzanne Grae, and Freedom) and fast food (Red Rooster and Hungry
Jacks).
1.35 Of the 5 256 federally registered CAs expiring in 2010, there are 2 859
(or 54 per cent) in the manufacturing and construction industries. The
expiring manufacturing agreements in 2010 represent over 30 per cent
of current agreements in that industry.
Award coverage
1.36 To assist the Panel in determining which industries and occupations
award-reliant employees predominantly lie, the Government presents the
following data from the most recent (2008) ABS Employee Earnings
and Hours (EEH) survey.
1.37 Overall, EEH data show that only 16.5 per cent of non-farm employees
(1 454 000 employees) were paid the rate specified in an award9 in
August 2008, down from 19.0 per cent in May 2006. This will reduce
the direct impact that increases in minimum wages will have on
aggregate employment and inflation.
9
This also includes those covered by Australian Pay and Classification Scales under the previous system. As the
majority of these instruments have now been replaced by modern awards, for ease of expression all employees in
this category will be referred to as award-reliant.
12 Australian Government Submission
1.38 Women were more likely to be award-reliant in August 2008
(19.9 per cent compared with 13.3 per cent for men). Award-reliance
has declined for both women and men over the period May 2006 to
August 2008 (down from 23.4 per cent and 14.7 per cent respectively).
1.39 Part-time employees were also more likely to be award-reliant in August
2008 (29.0 per cent compared with 9.8 per cent for full-time
employees). Once again, award-reliance is down for both part-time and
full-time employees over the period May 2006 to August 2008 (from
32.8 per cent and 11.8 per cent respectively).
1.40 Private sector award-reliance at 20.4 per cent was significantly higher
than that for public sector employees (0.4 per cent10) in August 2008.
Award-reliance is down for both private and public sector employees
over the period May 2006 to August 2008 (from 23.1 per cent and 2.4
per cent11 respectively).
1.41 The three industries with the highest concentration of award-reliant
employees in August 2008 were Accommodation and food services
(50.3 per cent), Administrative and support services (33.9 per cent) and
Retail trade (28.9 per cent) (see Table 1.1).
10
Estimate has a relative standard error of 25 per cent to 50 per cent and should be used with caution.
11
Estimate has a relative standard error of 25 per cent to 50 per cent and should be used with caution.
Australian Government Submission 13
Table 1.1 Award-reliance by industry, August 2008
Award-reliance
Proportion of employees
within each industry on
Industry awards (%)
Accommodation and food services 50.3
Administrative and support services 33.9
Retail trade 28.9
Other services 25.4
Rental, hiring and real estate services 20.2
Health care and social assistance 17.2
Arts and recreation services 14.2
Manufacturing 12.2
Construction 9.1
Wholesale trade 9.0
Education and training *8.4
Transport, postal and warehousing 8.3
Information media and telecommunications 5.6
Professional, scientific and technical services 5.4
Electricity, gas, water and waste services *5.4
Public administration and safety **3.6
Financial and insurance services *2.2
Mining *1.2
All industries 16.5
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, Table 15.
* Estimate has a relative standard error of 25 per cent to 50 per cent and should be used with caution.
** Estimate has a relative standard error greater than 50 per cent and is considered too unreliable for general
use.
1.42 The three occupations with the highest concentration of award-reliant
employees in August 2008 were Community and personal service
workers (31.7 per cent), Sales workers (30.5 per cent) and Labourers
(29.8 per cent) (see Table 1.2).
14 Australian Government Submission
Table 1.2 Award-reliance by occupation, August 2008
Award-reliance
Proportion of employees within
Occupation each industry on awards (%)
Community and personal service workers 31.7
Sales workers 30.5
Labourers 29.8
Technicians and trades workers 18.4
Machinery operators and drivers 12.7
Clerical and administrative workers 10.7
Professionals 4.2
Managers 2.3
All occupations 16.5
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, Table 16.
Changes in award coverage over time
1.43 The decline in the incidence of award-reliance between May 2006 and
August 2008 is a continuation of the longer term trend. The 2010 FWA
research report titled ‘An overview of compositional change in the
Australian labour market and award reliance’ (Research Report
01/2010) looks at award coverage since 2000 and concludes that “award
reliance is more likely to be found among employees who are female,
part-time, casual and are employed in certain industries or
occupations”.12
1.44 In addition, Research Report 01/2010 investigated the effect of
compositional change in the labour market on award-reliance. Labour
market composition can affect award-reliance when the proportion of a
particular group that has a relatively high (low) reliance on awards
increases and consequently total award-reliance increases (decreases).
Instead, the report finds that:
Within the context of decreasing award-reliance and increasing
agreement making, industry, gender, part-time and casual
employment indicators showed increases in labour market
segments that had a relatively higher proportion of award reliant
employees, in opposition to the general trend.13
12
D Rozenbes, ‘An overview of compositional change in the Australian labour market and award reliance’, Fair
Work Australia Research Report 1/2010, February 2010, page 64.
13
Ibid, page 6.
Australian Government Submission 15
1.45 Research Report 1/2010 finds that the general decline in award-reliance
over time was more to do with changes in the demand for higher skills:
The analysis in this paper also showed another effect of
compositional change in the labour market on award reliance that
came from the demand for skills. An increase in the demand for
higher-skills was shown to have occurred across all segments of
the labour market. This was also the case for the decrease in
award reliance. Employed persons who are less-skilled are more
likely to be employed in lower paid occupations and be more
reliant on awards. The proportion of employment comprised of
occupation groups with relatively high award reliance mostly fell
over the period 2000 to 2008…
The effect of an increase in demand for people with higher skill
levels is more pronounced using educational attainment data. As
employed persons reliant on awards are more likely to be
less-skilled and have lower educational attainment levels, a decline
in the proportion of employed persons without nonschool
qualifications, all other things being equal, is likely to have
contributed to a fall in award reliance.14
Government Position
1.46 The introduction of the new Fair Work system brings fairness to
Australia’s workplace relations laws. Importantly, the system and the
new set of legislative parameters for setting minimum wages achieves
the right balance between supporting the economy and employment
growth, while also providing consideration of the relative living
standards and needs of Australia’s lowest paid employees.
1.47 The Government’s submission is broadly structured according to the
new legislative parameters and presents what the Government believes
to be the most important considerations for each.
1.48 The Government believes that it is possible to be both economically
responsible and fair. Considered rises in minimum wages can exist
along side employment growth, when economic circumstances permit.
14
Ibid, page 65.
16 Australian Government Submission
1.49 The Government urges the Panel to grant a considered real increase in
minimum wages that, at a minimum, reflects the cost of living increases
since the last minimum wage rise.
1.50 The Government’s view is that a considered rise in minimum wages is
one that would allow low income working Australians to share fairly in
the benefits of the economic recovery.
Australian Government Submission 17
Chapter 2: Economic environment
Introduction
2.1 This chapter provides the latest information on the outlook for the
Australian economy to assist the Panel in considering the impact of
minimum wages on employment and competitiveness across the
economy. The updated economic outlook and impact of Budget
measures will be provided in the Government’s post-Budget submission.
2.2 The Australian economy has demonstrated resilience against a
background of still challenging global conditions. The economy has
performed better than expected this year, with forecasts now expecting
growth during 2009-10 of 1½ per cent compared to the -½ per cent
predicted in the 2009-10 Budget. Unemployment has also decreased
from its October 2009 peak of 5.8 per cent to 5.3 per cent in February
2010.
2.3 There remain, however, some downside risks to the economic outlook
over the next year. In terms of the labour market, hours worked have
fallen by more than 2 per cent in trend terms from the peak in June
2009. In broader terms, the economy is also expected to continue
operating below capacity for some time.
Economy
Domestic outlook
2.4 The December quarter 2009 National Accounts show that the Australian
economy continued to grow against a background of still challenging
global conditions.
2.5 As shown in Chart 2.1, real Gross Domestic Product (GDP) grew by 0.9
per cent in the December quarter 2009 to be 2.7 per cent higher over the
year. These results compare with GDP growth of 1.0 per cent over the
year to the December quarter 2008.
2.6 The National Accounts show household consumption grew by
0.7 per cent to be 2.8 per cent higher than a year ago. These increases
18 Australian Government Submission
compare with household consumption growth of 1.5 per cent over the
year to the December quarter 2008.
2.7 Increasing business profits were reflected in a 4.8 per cent rise in gross
operating surplus for private non-financial corporations in the December
quarter 2009. This is the first quarterly increase since the September
quarter 2008. Over the year to the December quarter 2009, business
profits contracted by 6.2 per cent.
2.8 New private business investment increased by 4.7 per cent in the
December quarter 2009 to be 0.6 per cent lower over the year. These
compare with an increase of 11.0 per cent over the year to the December
quarter 2008.
2.9 Exports increased by 1.7 per cent in the December quarter 2009, driven
by non-rural exports. Net exports detracted 1.3 percentage points from
GDP growth in the quarter reflecting a strong rise in imports. Partially
offsetting this, inventories added 0.1 of a percentage point to GDP
growth in the quarter.
Chart 2.1: Quarterly and annual growth rates in GDP (chain volume
measure), December quarter 2000 to December quarter 2009
Per cent change Per cent change
3 6
2 5
quarterly grow th (LHS)
1 4
0 3
-1 2
through-the-year grow th (RHS)
-2 1
-3 0
Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009
Source: ABS Australian National Accounts: National Income, Expenditure and Product (Cat. No. 5206.0),
December quarter 2009.
2.10 Growth forecasts for the Australian economy have been significantly
upgraded. Forecast growth over 2009-10 has been revised up from
Australian Government Submission 19
-½ per cent in the 2009-10 Budget to 1½ per cent in the 2009-10
Mid-Year Economic and Fiscal Outlook (MYEFO).
2.11 Household consumption is expected to grow by ¾ of a per cent for
2009-10 in MYEFO, compared with a contraction of a ¼ of a per cent in
the 2009-10 Budget. The improvement largely reflects a strong rebound
in consumer confidence supported by stimulus and the recent rise in
asset values.
2.12 Despite the improved outlook, the economy is expected to be operating
below capacity for some time. Although global financial conditions have
stabilised and the world economy is growing again, the global recovery
remains fragile and a sustained recovery in the major advanced
economies is not yet assured.
International outlook
2.13 The global economic recovery is proceeding faster than previously
expected, backed by substantial macroeconomic stimulus and financial
sector support. Both the IMF and the World Bank have recently
upgraded their forecasts. After contracting by 0.8 per cent in 2009, the
IMF is now forecasting global GDP growth of 3.9 per cent in 2010.
Nonetheless, the recovery is proceeding at different speeds in various
regions and remains fragile in many parts of the world, given the
weakness in private demand.
2.14 The economies of the United States, Euro area and Japan suffered deep
contractions last year and face the prospect of a slow and bumpy
recovery.
2.15 US GDP contracted by 2.4 per cent in 2009, the sharpest annual
contraction in the post-War era. In the two years following the onset of
recession in December 2007, more than 8.4 million jobs were shed, with
the unemployment rate reaching a 26-year high of 10.1 per cent in
October 2009. Conditions have improved since mid-2009, however
growth in 2010 is expected to be moderate relative to past recoveries
with the IMF currently forecasting growth of 2.7 per cent.
Unemployment is expected to remain high averaging around 10 per cent
this year.
2.16 The IMF is projecting the Japanese economy to grow by 1.7 per cent in
2010 after contracting by 5.0 per cent in 2009 – the largest annual fall in
20 Australian Government Submission
the post-War era. Unemployment was 4.9 per cent in January 2010,
down from a peak of 5.6 per cent in July 2009.
2.17 China’s economy has recovered strongly from the global downturn, with
GDP growth accelerating to 10.7 per cent through the year to the
December quarter 2009 on the back of significant fiscal and monetary
policy stimulus. However, the stronger-than-expected pick-up in
economic activity has triggered concerns about overheating, asset price
bubbles and the sustainability of growth. The IMF forecasts that GDP
will grow by 10 per cent in 2010.
2.18 Following the first contraction in global trade volumes since 1982 and
the sharpest in the post-war period, the IMF expects trade to grow by
6 per cent in 2010 while strong growth in China is expected to underpin
demand for commodities.
Employment
2.19 The Australian labour market has proven to be particularly resilient in
the face of the global economic downturn. In the MYEFO (the latest
official forecasts), the unemployment rate was forecast to peak at
6¾ per cent in the June quarter 2010. However, recent strong labour
market outcomes suggest that the unemployment rate has peaked lower
than this forecast. The better-than-expected growth in employment
presents upside risks to the outlook for wages in 2010-11.
2.20 After rising in early 2009, the unemployment rate hovered around
5¾ per cent until October 2009. Since October, the unemployment rate
has declined by 0.4 percentage points to currently stand at 5.3 per cent
in February 2010. The February unemployment rate is one of the lowest
unemployment rates of all the major advanced economies.
2.21 The recent decline in the unemployment rate has occurred in spite of
strong labour force growth, with the creation of new jobs outpacing new
entrants to the labour force. Since August 2009, employment has
increased by almost 200 000, more than offsetting the 150 000 entrants
into the labour force during the period.
2.22 This has been driven by strong increases in both full-time and part-time
employment. However, during the downturn, many employers appear to
have reduced staff working hours in preference to job shedding with
Australian Government Submission 21
average hours falling by more than 2 per cent in trend terms from the
peak in June 2009.
2.23 Other positive indicators include ANZ Job Advertisements which, in
trend terms, grew by 2.3 per cent in February 2010. This is the seventh
consecutive monthly increase, following 16 months of consecutive
declines. However, trend total job advertisements remain 9.2 per cent
lower through the year.
2.24 There is further detailed discussion of labour market trends and the
employment outlook in Chapter 3 of this submission.
Wages and inflation
2.25 The Wage Price Index (WPI) is the Australian Bureau of Statistics’
(ABS) headline measure of wages movements as it excludes changes in
the quality of labour and compositional shifts in the labour market. The
stability of the WPI relative to other measures, such as Average Weekly
Earnings, makes it the preferred indicator of wage trends for the ABS
and the Reserve Bank of Australia (RBA).
2.26 Below average outcomes in wage growth over the first three quarters of
2009 continued into the December quarter 2009. The Wage Price Index
(WPI) grew at its slowest pace in just under 10 years in the December
quarter 2009, up by 2.9 per cent through the year (seasonally adjusted).
2.27 The continued moderation has been driven by slower growth in private
sector wages, which has eased significantly to 2.5 per cent over the year
to December quarter 2009. This represents the lowest private sector
wage growth since the inception of the WPI series in 1997.
2.28 By contrast, wage growth in the public sector has also slowed, but
remains at 4.1 per cent through the year to December quarter 2009.
2.29 Wage outcomes across industries were broadly in line with divergent
public and private sector wage growth. ‘Civil sector’ industries such as
Transport, postal and warehousing, Electricity, gas, water and waste
services, Education and training, Health care and social assistance and
Public administration and safety recorded the strongest increases
through the year to December quarter 2009 while the weakest wage
growth was experienced in the Accommodation and food services,
22 Australian Government Submission
Rental, hiring and real estate services and Administrative and support
services industries.
2.30 Wages in the Mining and Construction industries also eased
significantly throughout 2009, both falling to below 4 per cent
(3.5 per cent and 3.4 per cent respectively). This is the first time in five
years that the Mining industry has seen wages growth below 4 per cent,
suggesting easing of labour constraints in this sector.
2.31 Wage growth moderation has been broad-based across the states.
Tasmania and the Australian Capital Territory recorded the strongest
through-the-year growth of 3.7 per cent. Through the year wage growth
in Western Australia at 3.0 per cent was the lowest result since the June
quarter 2004. South Australia and Victoria recorded the lowest growth
with 2.4 per cent and 2.7 per cent, respectively.
2.32 The most recent data about wage outcomes in collective agreements,
including those made under the FW Act, show that on average they
provide for a 3.5 per cent per annum pay increase. This is the lowest
average pay increase recorded in collective agreements for more than
five years. This demonstrates that, in general terms, employers,
employees and unions are exercising restraint when negotiating wages
in collective agreements.
2.33 The latest official forecasts suggest WPI growth of 3¼ per cent through
the year to the June quarter 2010 and 3½ per cent through the year to the
June quarter 2011, although weaker-than-expected outcomes in the
second half of 2009 present a downside risk to the near-term outlook.
Conversely, continuing strong outcomes in the labour market, in line
with the ongoing economic recovery, provide the upside risk to the
outlook for wages beyond the near-term.
2.34 Wage indicators in private sector business surveys indicate a likely
increase in the rate of growth of labour costs in coming quarters, albeit
from low levels. However, there is little to suggest that firms are having
difficulty obtaining suitable labour.15
2.35 Inflationary pressures have eased since last year’s minimum wage
decision. Inflation, which peaked in 2008, eased over the course of
15
NAB Monthly Business Survey and Economic Outlook; ACCI-Westpac Survey of Industrial Trends.
Australian Government Submission 23
2009. Headline inflation was 2.1 per cent through the year to the
December quarter 2009. Underlying inflation has been declining
gradually in year-ended terms for the past year but, at around
3.4 per cent through the year to the December quarter 2009, is still
above the RBA’s 2 to 3 per cent target band.
2.36 The outlook is for continued moderate inflation reflecting the easing in
capacity pressures over the past year and moderating labour costs. The
MYEFO forecasts underlying and headline inflation to be 2¼ per cent
through the year to the June quarters 2010 and 2011.
The Government’s response to the global financial crisis
2.37 This section outlines the Government’s fiscal strategy that guided the
design of its fiscal stimulus measures for mitigating the impact of the
global financial crisis. It then briefly provides some estimates of the
impacts of the fiscal stimulus on the economy and jobs.
The Government’s medium term fiscal strategy and the design
of its fiscal stimulus
2.38 The Government’s medium-term fiscal strategy16 guided the design of
the fiscal stimulus during the global financial crisis.
2.39 Consistent with the medium-term fiscal strategy, the Government
announced in February 2009 a two-stage fiscal strategy of supporting
growth during the downturn and returning the budget to surplus once the
economy recovers.
2.40 Stage 1 aims to support the economy during the global financial crisis
through the use of automatic stabilisers and stimulus spending.
2.41 Stage 2 is the deficit exit strategy, which states that as the economy
recovers and grows above trend, the Government will take action to
return the budget to surplus by banking tax receipts and by holding real
growth in spending to 2 per cent a year until the budget returns to
surplus.
16
The medium term fiscal strategy is aimed at achieving: budget surpluses, on average, over the economic cycle;
keeping taxation as a share of GDP on average below the level for 2007-08; and improving the Government’s net
financial worth over the medium term.
24 Australian Government Submission
2.42 The Government’s economic stimulus was designed to be timely,
temporary and targeted. Timely action allowed the stimulus to support
the economy when it was needed most. The stimulus measures were also
designed to ensure that they did not lock in higher baseline government
spending.
2.43 In addition, the stimulus measures were carefully targeted to ensure their
effectiveness in boosting demand, in turn supporting jobs and economic
activity. The large investment component of the stimulus addressed
long-term needs for economic and social infrastructure.
Impacts of the fiscal stimulus
2.44 The Government’s fiscal stimulus has provided support to the economy
and jobs during the global financial crisis.
2.45 While not immune to the effects of the global financial and economic
crisis, the Australian economy has performed better than initially
expected. Growth was stronger than expected at 1.3 per cent in 2008-09,
and is forecast to be 1½ per cent in 2009-10. The latest official forecasts
suggest a peak in the unemployment rate of 6¾ per cent in the June
quarter 2010. However, recent strong labour market outcomes suggest
that the unemployment rate may be lower than this forecast.
2.46 In year-average terms, advanced economies as a group contracted by a
record 3.2 per cent in 2009 and the global economy contracted for the
first time in the post war period. In contrast, the Australian economy
grew by 1.4 per cent in 2009. This means Australia had the strongest
growth of all the world’s advanced economies in 2009. Without the
fiscal stimulus, in year-average terms, the economy would have
contracted by 0.7 per cent in 2009.
2.47 The impact of fiscal stimulus on growth peaked in the June quarter 2009
and is already diminishing. The gradual wind down of fiscal stimulus
will subtract one percentage point from economic growth through 2010,
making room for the anticipated expansion in private sector activity.
Australian Government Submission 25
Conclusion
2.48 The Australian economy has performed better than expected since the
update provided in MYEFO but will continue to face challenges in the
short-term.
2.49 While recent data show upswings in household consumption and
employment, this was balanced against falls in business profit and
investment and net exports. Headline and underlying inflation remains
subdued. Wages growth has also slowed (particularly in the private
sector) to its lowest growth rate in almost ten years.
2.50 While signs of recovery are clearly evident, it is important the Panel
takes into account the fact that some level of volatility is anticipated to
remain in the Australian economy in the short-term.
2.51 The Government’s fiscal stimulus measures have helped keep economic
growth positive over the past 18 months. Further, they are estimated to
reduce the expected peak in the unemployment rate by 1½ percentage
points.
2.52 The Government’s stimulus measures were specifically designed to have
their greatest impact in the first half of 2009, when the economy was
expected to be at its weakest. As economic conditions improved, the
impact of the stimulus has been gradually winding down, starting from
the second half of 2009.
2.53 The withdrawal of the fiscal stimulus has also been designed so that it
occurs in an orderly fashion to allow the economy to shift as smoothly
as possible from being driven by public demand to being driven by
private demand.
2.54 The Government anticipates the Panel will take into account the
temporary nature of some of the fiscal stimulus measures, as well as the
relative and absolute impact of on-going tax and transfer measures in
place and their impacts on the incomes of low paid workers, in its
review of minimum wages.
26 Australian Government Submission
Australian Government Submission 27
Chapter 3: Labour market
developments
Introduction
3.1 The Panel is required to have regard to the performance and
competitiveness of the national economy, including productivity,
business competitiveness and viability, inflation and employment
growth. The Government submits that of these economic
considerations, employment growth is always the most important.
3.2 For example, it would be inconsistent with the objectives of the new
system if minimum wage increases were rejected, both during periods of
economic weakness (due to potential impact on employment growth)
and during periods of economic strength (due to potential impact on
inflation).
3.3 Any decision made by the Panel should consider the impact that an
increase in the minimum wage would have on employment given the
need to support employment growth as Australia’s economy
strengthens, balanced against consideration of relative living standards
and the needs of the low paid.
3.4 To assist the Panel, this chapter outlines recent trends in the labour
market, with some focus given to the groups most vulnerable to
unemployment, including teenagers, lone parents, the low skilled and
those in specific disadvantaged regions.
Overview
3.5 Up until around September 2008, economic and labour market
conditions in Australia had been reasonably strong, notwithstanding the
fact that the unemployment rate had already troughed at 3.9 per cent in
February 2008 and the pace of employment growth had begun to ease.
3.6 At the onset of the global economic downturn in September 2008,
economic and labour market conditions in Australia deteriorated
sharply. As a result, there are now 128 400 (or 26.3 per cent) more
28 Australian Government Submission
Australians out of work today than there were at the commencement of
the downturn.
3.7 The Australian labour market, however, has held up much better than
expected and has displayed remarkable resilience over the last year. In
particular, there has been a cumulative rise in employment totalling
197 800 recorded over the last six months alone.
3.8 Importantly, however, despite some welcome recent increases in
aggregate hours worked, average hours worked remain well below their
trend peak. Accordingly, businesses are likely to continue to rebuild
employee hours of work over the coming months before hiring new
workers on any significant scale. Moreover, the unwinding of the effects
of the fiscal stimulus package from here-on-in and the prospect of
higher interest rates may also temper the pace of the current jobs
upswing, at least to some extent.
3.9 That said, trend employment is currently growing at a healthy pace of
26 700 jobs per month as at February 2010, although this has eased back
from its stellar rate of 34 500 jobs per month in November 2009, when
interest rates were lower and when the impetus from the fiscal stimulus
package was greater.
3.10 Nonetheless, the near-term outlook is for a continued expansion in
employment, although at a somewhat less robust pace than the
remarkable rate recorded in late 2009.
3.11 Beyond the short-term, however, a likely strong pick-up in business
investment in the resources sector, in particular, may result in some
acceleration in labour market activity during the second half of 2010,
although this will be contingent upon the RBA’s interest rate stance over
the course of the year. All this aside, further significant inroads into the
unemployment rate, particularly against the backdrop of strong
population growth and potentially higher labour force participation, may
be difficult to achieve.
Employment
3.12 Over the year to February 2010, total employment has increased by
175 200 (or 1.6 per cent). Over the last six months, the pace of
Australian Government Submission 29
employment growth has been particularly strong, increasing by
197 800 (or 1.8 per cent).
3.13 While full-time employment has increased by just 4600 (or 0.1 per cent)
over the year to February 2010, this modest rise has been offset by
strong growth in part-time employment, up by 170 500 (or 5.4 per cent).
This strong rise in part-time employment, in part, reflects the fact that
employers, at least in the first instance, cut back on employee hours
during the global economic downturn in an attempt to avoid
redundancies and retain staff.
3.14 Further, the RBA, in its latest quarterly Bulletin, note that due to the
tightness in the labour market prior to the economic downturn, firms
were ‘overutilising’ their existing staff. As economic activity slowed it
took some time for this overutilisation to unwind by, for example,
reducing working hours. Firms may have also been reluctant to let go of
skilled workers as activity slowed, because labour had been so difficult
to source prior to the downturn. 17
Chart 3.1 Change in full-time, part-time and total employment (’000s),
February 2009 to February 2010
250
200
170.5 175.2
Employment growth ('000s)
150
131.0
100 89.0
81.5
41.9 44.2
50
4.6
0
-50 -37.3
-100
Males Females Persons
Full-time Part-time Total
Source: ABS Labour Force, Australia, February 2010 (Cat No: 6202.0), seasonally adjusted.
3.15 In terms of gender breakdown, over the year to February 2010, male
employment (up by 131 000 or 2.2 per cent) has grown more strongly
17
Reserve Bank of Australia ‘The Labour Market during the 2008-2009 Downturn’, RBA Bulletin, March quarter
2010.
30 Australian Government Submission
than female employment (up by 44 200 or 0.9 per cent) and has
accounted for around three-quarters (74.8 per cent) of total employment
growth over the past year. This clearly reflects, at least to some extent,
the paring back in hours from full-time to part-time.
3.16 From an industry perspective (see chart 3.2 overleaf), certain sectors
have been more exposed to the effects of the economic downturn than
others. For instance, Retail trade has been particularly hard-hit, with the
level of employment in this industry declining by 34 700 (or 2.9 per
cent) over the past year, reflecting the downturn in consumer spending.
Clearly, however, the Government’s fiscal stimulus package and in
particular the cash payments to households, has provided considerable
support to this sector.
3.17 Employment in the Manufacturing industry, which is closely linked to
the business cycle, has also been hard-hit. The level of employment in
this industry has fallen by 12 700 (or 1.3 per cent) over the past year.
3.18 It is also not surprising that the employment in Rental, hiring and real
estate services (down by 12 100 or 6.8 per cent) has contracted over the
year to February 2010. This is in line with the softening property and
financial markets during late 2008 and the earlier part of 2009.
Australian Government Submission 31
Chart 3.2 Change in employment (’000s) by industry, February 2009 to
February 2010
Transport, Postal and Warehousing
Retail Trade
Electricity, Gas, Water and Waste Services
Information Media and Telecommunications
Arts and Recreation Services
Manufacturing
Rental, Hiring and Real Estate Services
Agriculture, Forestry and Fishing
Construction
Mining
Public Administration and Safety
Financial and Insurance Services
Accommodation and Food Services
Education and Training
Health Care and Social Assistance
Administrative and Support Services
Wholesale Trade
Professional, Scientific and Technical Services
‐60 ‐40 ‐20 0 20 40 60 80 100
Change in employment ('000)
Source: ABS Labour Force, Australia, Detailed, Quarterly, February 2010 (Cat No: 6291.0.55.003), seasonally
adjusted.
Unemployment
3.19 Unemployment has risen by 7300 (or 1.2 per cent) over the year to
February 2010 and by 128 400 since the onset of the global economic
downturn in September 2008.
3.20 That said, the level of unemployment has recently fallen, by 43 500 (or
6.6 per cent) over the six months to February 2010, in line with the
stronger pace of employment growth during that period.
3.21 At 5.3 per cent, February’s unemployment rate was the same as a year
ago (see Chart 3.3). This, however, is down from its recent peak of
5.8 per cent recorded in October 2009.
Participation rate
3.22 Over the last year, the participation rate has decreased by 0.3 percentage
points to 65.2 per cent in February 2010 (see chart 3.3). Over this
period, the male participation rate fell by 0.1 percentage points, while
32 Australian Government Submission
the female participation rate declined by 0.7 percentage points to
58.3 per cent in February 2010.
3.23 Unlike previous downturns, the participation rate has not experienced
the decline normally associated with the discouraged worker effect18.
This is likely to have been due, partly at least, to the less severe than
expected nature of the current slowdown.
3.24 It is also worth noting that many prospective retirees were hard-hit by
the declining value of their share portfolios during the global economic
downturn, with shrinking nest eggs resulting in many older workers
staying in the labour market longer. Further, the participation rate of
married women continued to trend upwards in the earlier stages of the
downturn possibly as a result of previously non-working spouses
entering the labour force in an attempt to diversify household income,
due to expectations of rising unemployment.19
3.25 The continuing ageing of the population will also mean that in the
coming years, it will be increasingly difficult to maintain the current
levels of participation in the labour force. The Government’s
Intergenerational Report Australia to 2050: future challenges predicts
that the ‘total labour force participation rate is projected to fall from
around 65 per cent today, to less than 61 per cent by 2049–50, reflecting
a combination of the projected fall in the proportion of people aged 15
and over in the labour force, and falling hours worked by those in
employment.’
18
The discouraged worker effect refers to when workers withdraw from the labour market because of failed
searches for employment.
19
Reserve Bank of Australia ‘The Labour Market during the 2008-2009 Downturn’, RBA Bulletin, March quarter
2010.
Australian Government Submission 33
Chart 3.3 Unemployment rate and participation rate, February 2005 to
February 2010
6.0 66.0
Unemployment Rate (LHS) 65.5
5.5
65.0
Unemployment rate (%)
Participation rate (%)
5.0
Participation Rate (RHS)
64.5
4.5
64.0
4.0
63.5
3.5 63.0
Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10
Source: ABS Labour Force, Australia, February 2010 (Cat No: 6202.0), trend data.
Key groups in the labour market
3.26 The slowdown in labour market conditions that stemmed from the
global economic downturn has not been evenly experienced across
Australia. In particular, a number of vulnerable groups in the labour
market, including youth, the long-term unemployed, lone parents, lower
skilled workers and those with low levels of educational attainment have
been more highly affected than others. These cohorts are also more
likely to continue to experience some disadvantage as labour market
conditions begin to recover.
Youth (15-24 years)
3.27 Young people have been more adversely affected by the economic
downturn, as they generally have less experience and/or training and are
more likely to be employed in lower skilled jobs, which are often more
precarious.
3.28 Over the last year, unemployment for 15-24 year olds has increased
disproportionally compared with other cohorts, up by 10 400 (or
4.5 per cent), while their unemployment rate has increased from
11.0 per cent in February 2009 to 11.4 per cent in February 2010.
34 Australian Government Submission
3.29 Some younger cohorts have been affected more heavily than others. For
instance, the number of 2008 school leavers (latest available data) who
were still unemployed by the end of 2009 was 86 per cent higher than
the number of 2007 school leavers unemployed in September 2008.
3.30 Of particular note, unemployment for 20-24 year old males increased by
66 per cent, compared with a 38 per cent increase for the population as a
whole. School leavers and males aged 20-24 years have accounted for
three-quarters of the growth in youth unemployment numbers.
3.31 Generally speaking, as more young people begin to encounter
difficulties securing employment in the face of an economic shock (in
this case, the global economic downturn), the proportion of youth
participating in full-time education tends to rise. This is also borne out
in recent data which shows that the proportion of youth in full-time
education has increased by 0.7 percentage points over the year, to stand
at 48.0 per cent in February 2010. However, this pick-up in education is
less pronounced than those seen in previous downturns.
3.32 In response to the economic downturn, the Council of Australian
Governments (COAG) agreed to establish a Compact with Young
Australians. This Compact will ensure that as the economy recovers
from the global recession, young Australians will have the skills
required to realise their potential.
3.33 Under the terms of the Compact every Australian under the age of 25
has a guaranteed education or training place. The Government
anticipates that the Compact with Young Australians will provide up to
135 000 young people with higher qualifications.
3.34 Further, the Compact with Young Australians will be the foundation of a
new National Partnership on Youth Attainment and Transitions that will
drive longer-term reform to ensure that young people stay engaged in
education and training and attain a year 12 or equivalent qualification.
The long-term unemployed
3.35 The significant increase in the short-term unemployment numbers that
has occurred since early to mid-2009 is now beginning to flow through
into higher levels of long-term unemployment.
Australian Government Submission 35
3.36 Over the year to February 2010, the level of long-term unemployment
has risen by 24 600 (or 30.2 per cent) to stand at 105 900. Over the same
period, the number of very long-term unemployed (those unemployed
for 104 weeks or over) has increased by 4000 (or 9.7 per cent) to
45 600.
3.37 Of particular concern is that when a person is unemployed for a
significant length of time, it becomes more difficult to find subsequent
work due to skill depreciation, the discouraged worker effect and
marginalisation from the workforce. Experience from previous
downturns shows that it takes a considerable period of time before long-
term unemployment returns to its pre-downturn level.
3.38 In order to reduce the risk of employees retrenched during the economic
downturn becoming long-term unemployed, the Government introduced
the Structural Adjustment element of its Productivity Places Program in
October 2008. This program provides funding for training places for
Certificate II and above qualifications for retrenched or stood down
workers. These places can be accessed on behalf of groups of employees
in possession of separation documentation or notices of redundancy, by
employers’ or employees’ representatives.
3.39 Further, on 2 July 2009, the Australian Government agreed with state
and territory governments to deliver the Compact with Retrenched
Workers. This Compact allows retrenched workers to receive prioritised
access to state and territory delivered government subsidised Vocational
Education and Training qualifications. To be eligible for the Compact,
participants must be over 25 years of age and in possession of a
separation certificate or notice of redundancy dated on or after 1 January
2009.
Lone parents
3.40 In June 2009 (latest available data), there were 2 282 600 families20 with
dependent children aged under 15 in Australia, 318 000 (or
13.9 per cent) of whom were jobless families. The majority of jobless
families (214 800 or 67.6 per cent) were headed by a lone parent.
20
Excluding those families with a parent whose labour force status was ‘Not determined, other’.
36 Australian Government Submission
3.41 Over the year to June 2009, the number of employed lone parents with
dependent children fell by 15 500 (or 5.7 per cent) to 254 300. This
decline occurred in conjunction with a rise in the number of lone parents
over the year, up by 11 200 or 2.4 per cent. Employment for couple
families with dependent children decreased by 9000 (or 0.3 per cent)
over the period.
3.42 The number of dependent children in jobless families rose significantly
over the year to June 2009, up by 114 500 (or 22.7 per cent) to stand at
618 900. This is in line with more subdued labour market conditions
over the period, with almost 65 per cent of dependent children in jobless
families now living in lone parent families.
3.43 Lone parents often possess characteristics that predispose them to labour
market disadvantage, such as lower educational attainment levels.21 This
is reflected in their high unemployment rate of 9.6 per cent in June
2009, compared with an unemployment rate of 4.2 per cent for parents
in a couple family with dependent children.
3.44 Accordingly, lone parents are significantly more likely to experience
labour market disadvantage as a result of the economic downturn than
their coupled counterparts.
Less skilled group
3.45 Reflecting the impact of the global economic downturn on trades
employment and low skilled workers, employment fell sharply for
Technicians and Trade Workers (down by 57 400), Clerical and
Administrative Workers (down by 51 300) and Machinery Operators
and Drivers (down by 22 600) over the year to the February quarter
2010.22
3.46 Against the backdrop of a softening labour market, higher educational
attainment levels (which are strongly linked with better employment
prospects) become a significant predictor of how well a person might
fare in a more difficult labour market environment. For example, upon
retrenchment, those with lower educational attainment (all else being
equal) will find it more difficult to find subsequent employment
21
ABS Education and work, May 2008 (Cat. No. 6227.0), unpublished data.
22
Occupation data are trended by DEEWR.
Australian Government Submission 37
compared with their more highly skilled counterparts. Similarly, new
labour market entrants will encounter greater difficulty securing an
initial foothold in the jobs market.
3.47 Although many highly skilled workers have also encountered
retrenchment during 2009 (for instance, in the early stages of the global
economic downturn, many in Finance and Insurance were made
redundant), they nonetheless will encounter fewer barriers in finding
subsequent employment.
Discouraged jobseekers
3.48 In September 2008 (latest available data) there were 73 900 discouraged
jobseekers (people with marginal attachment to the labour force who
wanted and were available to work but did not think they would find a
job), a fall of 2700 (or 3.5 per cent) from a year earlier. 23 While it is not
possible to examine changes in the number of discouraged job seekers
during previous economic downturns (due to lack of data
comparability), it could be expected that their numbers rose over
2009-10 as a result of the slowing in labour market conditions.
State labour market differences
3.49 Labour market conditions have varied considerably across Australia
over the last year. Employment increased in the majority of
states/territories over the year to February 2010, with the largest
increases (in percentage terms) recorded in Victoria (up by 3.3 per cent),
the Northern Territory (up by 3.0 per cent) and South Australia (up by
1.8 per cent). Employment in Tasmania decreased by 3.1 per cent over
this period.
3.50 Over the year to February 2010, the resource-rich states of Queensland
(up 1.0 percentage points to 5.7 per cent) and Western Australia (up
0.8 percentage points to 5.0 per cent) recorded large increases in their
unemployment rates. This reflects the impact of the temporary
downturn in the Mining sector (and flow-on effects from that industry to
other sectors, in particular, Construction) during 2009. Tasmania also
recorded a significant increase in its unemployment rate (up by 2.0
23
ABS Persons Not in the Labour Force, September 2008 (Cat. No. 6220.0).
38 Australian Government Submission
percentage points to 6.4 per cent over the period), the highest of any
State or Territory.
3.51 The Queensland and Western Australian economies were adversely
affected by a sharp decline in demand for commodity exports as a result
of the global economic downturn, particularly during the first half of
2009. However, commodity prices have recovered considerable ground
since and the level of demand has accelerated (particularly from China),
improving the outlook for our terms of trade and the two resource-rich
states. In particular, both states will be supported by longer-term mining
projects including the $12 billion Pluto LNG development (WA), the
$43 billion Gorgon LNG plant (WA) and the $60 billion deal to export
coal from Galilee Basin (QLD) to China.
Chart 3.4 Change in employment and the unemployment rate by state
and territory, over the year to February 2010
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Employment (per cent)
Unemployment rate (percentage points)
-3.0
-4.0
NSW Vic Qld SA WA Tas ACT NT
Source: ABS Labour Force, Australia, February 2010 (Cat No: 6202.0), data for the States are seasonally
adjusted, while data for the Territories are trend.
Regional labour market developments
3.1 Despite softer labour market conditions throughout Australia,
considerable disparity in labour market performance continues to exist
between metropolitan and non-metropolitan areas. For instance, over
the year to February 2010, employment rose by 131 000 (or
Australian Government Submission 39
1.9 per cent) in metropolitan areas, while employment in non-
metropolitan Australia increased by a much more subdued 19 800 (or
0.5 per cent).
3.52 Moreover, metropolitan areas have traditionally recorded a significantly
lower unemployment rate than non-metropolitan areas. Indeed, as at
February 2010, the unemployment rate in metropolitan areas stood at
5.5 per cent, 0.4 percentage points below the 5.9 per cent recorded in
non-metropolitan areas.
Regional disparity and disadvantage
3.53 While the economic and labour market slowdown stemming from the
global economic downturn has had an impact on most regions across
Australia, some areas have been more adversely affected than others.
3.54 Differences in regional performance can be ascribed to a range of
factors including, population size and growth, the natural attributes of a
region and its level of infrastructure, access to major transport networks,
a region’s demographic profile and the skill level of its population.
3.55 Clearly, too, those regions with a higher proportion of their population
employed in industries hard-hit by the downturn, for example
Manufacturing, Construction and Finance and Insurance, are likely to
encounter greater difficulties than areas which are not so reliant on these
industries.
3.56 Moreover, areas that were already displaying entrenched disadvantage
are more likely to continue to experience poor labour market outcomes
than their more dynamic counterparts.
3.57 In recognition of this and of the fact that some regions are likely to
experience ongoing disadvantage, the Government established 20
Priority Employment Areas (PEAs) (see table 3.1 for further detail).
3.58 Each area has been the focus of a range of Government activities
designed to respond rapidly to the needs of workers who were made
redundant due to the global economic downturn and to ensure maximum
effectiveness of Government, community and business efforts to
stimulate the local economy and generate new jobs.
40 Australian Government Submission
3.59 A number of PEAs are likely to continue to experience further rises in
their unemployment rate and/or labour market disadvantage for some
time to come, despite the recent improvements in labour market
conditions at the national level.
Conclusion
3.60 As is always the case after any economic downturn, even one that is less
severe than expected, unemployment in regions can remain stubbornly
high for many months or years, even after an economic recovery has
taken hold.
3.61 This is likely to be particularly evident in regions which have a high
industry exposure to sectors that were hard-hit by the global economic
downturn. There is clear evidence for this in many of the PEAs with
high exposure to the Manufacturing industry, to cite just one example.
3.62 The current downturn is also having a disproportionate impact on the
employment prospects of a number of other industries (e.g. Construction
and Retail trade) and demographic groups, like youth and the long-term
unemployed, in particular. The Panel’s decision has the potential to have
an even greater impact on these cohorts.
3.63 It is against this background that the Government submits that the Panel
should have particular regard for the employment prospects of the most
vulnerable groups in the Australian labour market, referred to above,
while at the same time balancing that with the need for a fair and
minimum safety net.
Australian Government Submission 41
Table 3.1 Selected labour market indicators for 20 Priority Employment Areas, January 2010
Selected Labour Market Indicators for the 20 Priority Employment Areas that were announced in July 2009
Proportion of working Proportion of working Increase in Proportion of working Unemployment Rate Participation Rate Youth Proportion of total Indigenous
age population (aged 15- age population (aged 15- unemployment age population (aged 15- January 2010 (%)3 January 2010 (%)3 Unemployment Rate employment in Unemployment Rate
64) who completed Year 64) who have attained a beneficiaries 64) in receipt of Income January 2010 (%)3 Manufacturing (%), (%)
12 or equivalent (%), Bachelor degree or September 2008 to Support Payments, August 20061 August 20061
August 20061 higher, August 20061 January 2010 (%)2 January 2010 (%)2
Canterbury-Bankstown and South Western
Sydney 44.1 11.4 35.2 16.5 7.6 60.0 16.8 15.0 16.4
Illawarra 36.4 12.8 27.1 16.7 7.2 53.0 15.0 11.1 23.4
Richmond-Tweed and Clarence Valley 34.0 11.4 34.2 23.0 6.5 50.9 13.5 7.4 21.9
Mid-North Coast 29.1 9.4 23.6 23.0 6.5 50.9 13.5 8.1 26.5
South Eastern Melbourne 43.7 12.1 50.2 13.8 6.7 65.8 12.9 19.2 14.8
Ipswich-Logan 39.9 8.4 82.6 15.4 6.6 69.3 13.2 16.6 15.5
Northern and Western Adelaide 41.3 12.2 31.2 18.2 6.1 62.2 14.3 15.5 18.8
South West Perth 36.5 8.7 77.0 9.6 5.2 69.3 9.4 14.1 15.8
North West/Northern Tasmania 27.9 10.3 30.2 19.1 6.5 60.1 10.3 13.1 15.7
Port Augusta-Whyalla-Port Pirie 26.9 7.1 19.1 20.4 5.0 59.8 11.3 15.5 20.3
Southern Wide Bay-Burnett 29.2 6.9 48.6 23.6 6.6 54.3 13.2 12.2 15.4
Bundaberg-Hervey Bay 30.5 8.0 49.0 23.6 6.6 54.3 13.2 8.9 19.5
North Western Melbourne 45.0 12.8 42.5 14.6 6.9 64.6 15.5 16.4 13.2
Ballarat-Bendigo 37.7 13.6 33.6 17.0 6.5 63.0 13.5 12.6 19.5
Sydney West and Blue Mountains 45.7 15.8 40.4 13.9 6.5 65.2 14.4 12.5 16.8
Cairns 40.8 11.0 73.7 17.8 11.0 69.8 15.5 6.4 15.1
Caboolture-Sunshine Coast 40.1 10.9 78.9 13.8 6.0 62.7 12.2 9.0 14.3
Central Coast-Hunter 35.3 11.9 28.8 16.8 6.5 60.2 13.7 10.5 18.9
Townsville-Thuringowa 42.4 12.2 74.1 13.5 5.1 75.2 7.8 8.9 17.4
North Eastern Victoria 34.1 11.0 30.1 16.1 5.4 61.7 13.1 14.6 19.0
Australia 46.5 17.4 44.0 12.9 5.4* 65.2* 11.7** 10.5 15.6
1
Source: ABS Census of Population and Housing, August 2006.
2
Source: DEEWR administrative databases (Bluebook Database).
3
Source: ABS Labour Force, Australia, Detailed - Electronic Delivery, January 2010 (Cat.no. 6291.0.55.001), three month averages of original estimates. Labour market indicators are based on the ABS Labour Force Region (LFR), or combination of LFRs, that best approximate the Priority Employment Areas.
*Please note that the seasonally adjusted unemployment rate for Australia stood at 5.3 per cent in January 2010 and the seasonally adjusted participation rate for Australia stood at 65.3 per cent in January 2010. The national unemployment rate of 5.4 per cent and the national participation rate of 65.2 per cent, provided above, are in three-month average
original terms to enable valid comparisons to be made with the data at the regional level.
**Please note that while the seasonally adjusted youth unemployment rate for Australia stood at 11.4 per cent in January 2010, the national figure of 11.7 per cent provided above is in 12-month average original terms to enable valid comparisons to be made with the data at the regional level.
42 Australian Government Submission
Australian Government Submission 43
Chapter 4: Social inclusion and
workforce participation
Introduction
4.1 As noted in Chapter 1, the new set of legislative parameters provide a
more balanced set of considerations that the Panel must take into
account when setting minimum wages. In particular, the new legislative
criteria highlight the importance of social inclusion objectives in relation
to setting minimum wages.
4.2 Social inclusion is central to the Government’s vision of building a
stronger and fairer nation. Achieving this vision means tackling the most
entrenched forms of disadvantage in Australia by expanding the range of
opportunities available and helping the disadvantaged build the skills
and capabilities that encourage self-reliance.
4.3 Workforce participation is among the most important steps in assisting
the disadvantaged into mainstream society by enabling them to
contribute to the economy and community and connect with others.
4.4 It is important that the Panel, in its deliberations, considers the increased
incentives that higher minimum wages can provide to those not in
employment to seek paid work, balanced against potential impacts on
the demand for low paid workers and hence the supply of low paid jobs,
from delivering large minimum wages increases.
4.5 Promoting social inclusion through increased workforce participation is
about: ensuring that there are adequate employment opportunities for
people to engage in work, particularly those who are currently
unemployed; increasing the incentive for employment where possible;
and once employed, ensuring that low paid work provides a decent
standard of living.
4.6 To this end, it is important to note that low paid jobs can be an important
entry point for the poor and vulnerable into the workforce and can
provide a stepping stone to higher paid and more stable forms of
employment. At the same time, however, there are a significant number
44 Australian Government Submission
who remain in low paid employment for some time. These individuals
should be able to expect a fair level of remuneration for their work.
4.7 This chapter starts by outlining the Government’s social inclusion
agenda, followed by a discussion of the links between social inclusion,
workforce participation and minimum wages. The chapter then
examines the importance of low paid jobs in terms of providing both an
entry point into the workforce and as a stepping stone to higher paid
employment. A brief discussion of the evidence relating to the impact of
minimum wages on employment follows. Finally, an analysis is
presented of the incentives that minimum wage and low paid jobs
provide to those not in the workforce to seek paid employment.
The Australian Government’s social inclusion agenda
4.8 Despite high levels of economic growth recorded in Australia in the last
decade, many Australians are still excluded from the opportunities
necessary for them to realise their potential and participate in Australia’s
economic and social life.
4.9 The cost to individuals, communities and the nation of failing to address
the issue of social disadvantage and exclusion is high. Inaction has
serious implications for Australia’s economic future, including rising
costs in health care, welfare and justice, lower workforce participation
and productivity and higher rates of crime. The impact of disadvantage
on individuals and families is similarly significant and may take the
form of financial hardship, social and physical isolation, chronic health
problems, family breakdown and unrealised opportunities.
4.10 The Government is committed to addressing the problem of persistent
social disadvantage - disadvantage should not be ongoing for current or
future generations.
4.11 The Government’s Social Inclusion Agenda aims to equip Australians
with the opportunities, resources, capabilities and responsibilities to
learn, work, engage with others and have a voice in their community.
4.12 In the long-term, with the ageing of our population, the impact of the
global economic downturn and emerging skills shortages across the
economy, increasing participation presents an important economic
Australian Government Submission 45
challenge for Australia. It is important to ensure that all Australians,
including young people (particularly early school-leavers), the unskilled
and marginalised, mature age Australians and parents seeking to return
to work are given the opportunity to participate in all aspects of
Australian life and share in our economic prosperity.
4.13 The Government believes that Australia’s long-term growth and social
development depends on securing the full social and economic
participation of these groups and is working towards increasing the
engagement of the most highly disadvantaged through the Social
Inclusion Agenda.
4.14 The Social Inclusion Agenda is built on five pillars which provide a
framework for building a stronger and fairer Australia:
• Maintaining a strong and internationally competitive economy to
secure jobs for the future and create opportunity;
• Creating the opportunities and resources that every Australian
needs to participate in the economy and community life through
more equitable social policies;
• Ensuring that services which are provided to all Australians meet
high standards in such areas as education, training, health,
housing and social support;
• Supporting families and building strong and cohesive
communities; and
• Building new and innovative partnerships with all sectors of the
economy, such as government agencies, businesses and not-for-
profit organisations.
4.15 Based on evidence about the causes and consequences of social and
economic disadvantage in Australia, the Government is focusing on six
specific priorities:
• Targeting jobless families with children to increase work
opportunities, improve parenting and build capacity;
• Improving the life chances of children at greatest risk of long
term disadvantage;
46 Australian Government Submission
• Reducing the incidence of homelessness;
• Improving outcomes for people living with disability or mental
illness and their carers;
• Closing the Gap for Indigenous Australians; and
• Breaking the cycle of entrenched and multiple disadvantage in
particular neighbourhoods and communities.
4.16 So far, the Government has taken a number of actions to tackle social
exclusion by: creating fairer workplaces; reforming age pensions;
investing in early childhood education and schools; responding to the
global economic downturn with employment, training and stimulus
measures to limit the impact on vulnerable people and our economy;
reforming higher education to help more low socio-economic status
students go to university; and working to strengthen third sector
organisations.
4.17 The challenge for the Government is to now ensure that the aims of the
Social Inclusion Agenda remain a central component of the planning
and implementation of all future policy initiatives.
4.18 This means coordinating policies across national, state and local
governments and working in partnership with the community sector, to
ensure no Australian is excluded from meaningful participation in
education and the mainstream economic and social life of our country.
Social inclusion and workforce participation
4.19 Employment provides the resources and social connection that sustains
and strengthens families and communities. It is also the first and most
important plank towards economic participation and social inclusion.
4.20 Unemployment, on the other hand, places significant financial and
social burdens on individuals, families and communities and can lead to
or compound other forms of disadvantage. Therefore, helping people to
find and retain employment is critically linked with health and
well-being.
Australian Government Submission 47
4.21 Research suggests that any employment, even low paid employment,
reduces future income support dependency and serves as a bridge to
higher paid employment.24 To this end, minimum wage jobs play an
important role in creating pathways to sustainable and meaningful
employment for the low paid. Evidence suggest that after three years,
53.9 per cent of low paid workers move on to higher paid employment,
23.1 per cent remain in low paid employment and 17.8 per cent become
unemployed or drop out of the labour force.25
4.22 Importantly, workforce participation for the low paid facilitates greater
social inclusion opportunities by enabling them to participate in
education and training and influence decisions that affect them.
4.23 Living in jobless households, on the other hand, can have many adverse
consequences for families. Household unemployment has been linked to
increased incidence of family break up, truancy and non-completion of
schooling, spouse abuse, substance abuse, incarceration, illness and even
premature death.26 Each of these consequences, in addition to the actual
fact of joblessness, has a negative impact on the national economy.
4.24 More importantly, the loss of social and professional contacts caused by
unemployment ultimately leads to greater social exclusion.
24
From National Social Inclusion Statement – P Whiteford and W Adema (2007) “What Works Best in Reducing
Child Poverty: Benefit or Work Strategy?”, Paris, OECD Social, Employment and Migration Working Papers, 51,
March 2007.
25
H Buddelmeyer, W-S Lee, M Wooden and H Vu, (2007) ‘Low Pay Dynamics: Do Low Paid Jobs Lead to
Increased Earnings and Lower Welfare Dependency Over Time?’ Project 2/2006, Melbourne Institute of Applied
Economic and Social Research, University of Melbourne.
26
T Vinson, ‘Jobless Families in Australia: their prevalence, personal and societal costs, and possible policy
responses’, January 2009, Fourth commissioned paper on social inclusion/exclusion. A report prepared for
DEEWR.
48 Australian Government Submission
The extent of social exclusion in Australia
4.25 Using HILDA data, Kostenko, Scutella and Wilkins27 show that between
20-30 per cent of people aged 15 years and over experienced marginal
exclusion or worse at any given point in time over the 2001-2007 time
period. Moreover, 4 to 6 per cent of people were deeply excluded while
less than one per cent were very deeply excluded.28
4.26 In general, groups found to be most prone to exclusion included:
females, the young and old, single parents, persons in regional areas,
Indigenous Australians, persons born in non-English speaking countries,
persons in private rental accommodation, persons with a long term
health condition and persons who have not completed secondary school
(or its equivalent).
4.27 Importantly, the authors found that gains in employment were
particularly important in lowering measured social exclusion for all
observed demographic groups, be it marginal exclusion or deep
exclusion.
4.28 In addition, the authors found that groups with typically low
employment rates, in particular, the older age groups and single parents,
experienced less dramatic declines in social exclusion compared with
others.
Minimum wages and social inclusion
4.29 The Government is not aware of any research that directly focuses on
the links between minimum wages and social inclusion. However, there
have been studies which have focussed on the relationship between
minimum wages and the various dimensions of social inclusion.
27
W Kostenko, R Scutella and R Wilkins, ‘Estimates of Poverty and Social Exclusion in Australia: A
Multidimensional Approach’, November 2009.
28
A measure of social exclusion that recognises multidimensionality was constructed for each individual. Seven
dimensions or domains were identified, they include: material resources; employment; education and skills; health
and disability; social; community; and personal safety. For each of these seven domains, indicators of social
exclusion were produced after which a simple ‘sum-score’ method was used to estimate the extent or depth of
exclusion. The proportion of individuals with a sum-score greater than or equal to 1 were considered to be
experiencing marginal exclusion or worse, while those individuals with a sum-score greater than or equal to 2 or 3
were viewed as experiencing deep and very deep exclusion respectively.
Australian Government Submission 49
4.30 Fair Work Australia has compiled a useful scoping paper that canvasses
much of the available research on this issue. The section below provides
some discussion on this material.
4.31 An important way in which minimum wages can promote social
inclusion is through the provision of a safety net. Research shows that
minimum wage workers tend to be those with low levels of education,
older part-time workers, migrants from non-English speaking
backgrounds working full-time and those working on a casual basis.29
4.32 Minimum wages, therefore, can provide these vulnerable groups with a
much needed safety net.
4.33 Moreover, as discussed earlier, entry into the workforce promotes social
inclusion by providing benefits from working such as increased
resources, improved access to social networks and support and better
physical and mental health.
4.34 Higher minimum wages, holding all else constant, also raise the
incentives for people who are unemployed or not in the labour force to
find work. The willingness of a person to work also depends upon the
interaction between wages and the tax-transfer system. DEEWR
modelling on the interaction between wages and the tax-transfer system
(presented later in this chapter) shows that minimum wage jobs and low
paid jobs do make people financially better off and, therefore, provide
real incentives to seek work.
The importance of low paid work to unemployed persons
and persons not in the labour force
4.35 While attaining employment does not automatically satisfy all the
criteria for social inclusion, the Government believes that employment is
still a key component of social inclusion since it provides the socially
excluded with their initial contact and engagement with society.
4.36 Accordingly, the Government urges the Panel in its deliberations to have
regard to the impact that an increase in minimum wages would have on
employment growth given the Government’s actions to support
29
L Nelms and K Tsingas, ‘Literature review on social inclusion and its relationship to minimum wages and
workforce participation, Fair Work Australia, Research report, January 2010.
50 Australian Government Submission
employment as Australia’s economy strengthens, balanced against the
consideration of relative living standards and supporting the needs of the
low paid.
4.37 The following section of this chapter provides an analysis of the
importance of low paid jobs using data from the HILDA survey. In
particular, it shows that low paid jobs can act as an important entry point
into the workforce as well as provide a stepping stone to higher paying
jobs. It also shows that some low paid workers stay in low paid work for
an extended period. Both of these findings should be considered
carefully by the Panel.
Labour market outcomes of non-employed persons
4.38 Low paid work is an important entry point into the workforce for people
who are unemployed and not in the labour force.30 Importantly, it serves
as a plank for those that are on the fringes of society and are socially
excluded.
4.39 Examination of data from the HILDA survey show that an average of
22.2 per cent of unemployed people and 4.7 per cent of persons who
were not in the labour force31 in one year were in paid employment in
the following year over the period between 2003 and 2007. This
excludes those persons who may have transitioned in and out of
employment within the year (see Table 4.1).
30
The following analysis refers to outcomes for unemployed persons and persons not in the labour force who were
aged 21 years and above and does not include full-time students. Analysis was restricted to those respondents who
offered sufficient information to allow hourly wage rates to be calculated. Consistent with the OECD’s definition,
low paid workers were defined as those employees earning between the Federal Minimum Wage and up to two-
thirds of the median hourly earnings for full-time employees. The median earnings for full-time employees are
sourced from the ABS Employee Earnings, Benefits and Trade Union Membership (Cat. No. 6310.0). The
threshold for casual employees was adjusted by up rating the standard low paid bound by 20 per cent. The hourly
wage rate thresholds were rounded to the nearest 50 cents.
31
Those persons listed as unemployed and not in the labour force are defined as ‘non-employed.’
Australian Government Submission 51
Table 4.1 Percentage of unemployed and not in the labour force
persons who found paid employment in the following year
Unemployed in t and Not in the Labour Force at t
Employed at t+1 (%) and Employed at t+1 (%)
2003 to 2004 21.0 4.5
2004 to 2005 22.3 5.2
2005 to 2006 23.8 4.4
2006 to 2007 21.5 4.6
Average for 4 periods 22.2 4.7
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
4.40 Table 4.2 below shows the results of persons who were either
unemployed or not in the labour force in one year (t) and found a job in
the following year (t+1). In particular, of this group:
• an average of around 32.4 per cent of people who were
unemployed in one year found a low paid job the following year;
and
• an average of around 26.2 per cent of people who were not in the
labour force in one year found a low paid job the following year.
Table 4.2 Wage outcomes of persons who were unemployed or not in
the labour force in one year and employed in the following
year (%)
Unemployed at t and Not in the Labour Force
Employed at t+1 (%) at t and Employed at t+1
(%)
Low Paid Higher Low Paid Higher
t+1 Paid t+1 t+1 Paid t+1
2003 to 2004 29.1 70.9 23.2 76.8
2004 to 2005 35.3 64.7 28.4 71.6
2005 to 2006 36.4 63.6 21.7 78.3
2006 to 2007 29.1 70.9 31.5 68.5
Average for 4 periods 32.4 67.6 26.2 73.8
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
4.41 Importantly, transitional analysis shows that 72.0 per cent of low paid
employees (in 2006) who were previously unemployed in 2005
continued to be employed in 2007. Of these employees, 48.0 per cent
52 Australian Government Submission
were in higher paying32 jobs while 52.0 per cent continued to be low
paid (Table 4.3).
4.42 In addition, 56.0 per cent of low paid employees (in 2006) who were
previously not in the labour force in 2005 continued to be employed in
2007. Of these employees, 40.0 per cent were in higher paying jobs
while 60.0 per cent continued to be low paid.
Table 4.3 Wage outcomes of low paid employees who were unemployed
or not in the labour force in 2005 (were low paid in 2006) and
still employed in 2007 (%)
Unemployed (%) Not in the Labour Force (%)
Higher Pay 47.8 Higher Pay 40.0
Low Pay 52.2 Low Pay 60.0
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
4.43 The above analysis illustrates that low paid work is not just an important
entry point for persons who are unemployed and not in the labour force,
but can also act as a stepping stone to higher paying jobs in the future.
The analysis, however, also illustrates that a proportion of low paid
workers who are still in employment continue in low paid employment
over time.
Low paid transitions
4.44 The above analysis is supported by research undertaken by the
Melbourne Institute into the transitions of low paid workers which
shows favourable employment and wage outcomes.33
4.45 Using four waves of HILDA data, the Melbourne Institute found that
53.9 per cent of workers earning up to two-thirds of median weekly
earnings in 2001 progressed to higher paying jobs by 2004. In contrast,
23.1 per cent of workers remained in a low paid job (see Table 4.4
32
Higher paying jobs are defined as jobs paying more than two-thirds of median income.
33
H Buddelmeyer, W-S Lee, M Wooden and H Vu, ‘Low Pay Dynamics: Do Low Paid Jobs Lead to Increased
Earnings and Lower Welfare Dependency Over Time?’. For the purposes of the study, the Melbourne Institute
defined low paid workers as those earning up to two-thirds of median income, which is just in excess of the hourly
rate of pay of those on the FMW. The data excluded those persons aged under 21 years, full-time students, and
persons who were either self employed or employees of their own business. The Melbourne Institute included all
employees recording positive hourly wage rates which they determined using weekly earnings in main job and
hours worked in main job. A discount of 20 per cent was applied to calculated wage rates to account for the
loading paid to casual employees in lieu of leave entitlements. Low paid workers were defined as moving to a
higher paid job if they earned in excess of two-thirds of median weekly earnings in the following year.
Australian Government Submission 53
below). For these individuals, it is important that minimum wages
provide a fair living wage.
Table 4.4 Labour Force Status of Adult Low Paid Workers in 2001 in
Subsequent Years
Labour Market State
Employed UE NILF Total
< 2/3 2/3 to 3/4 3/4 to > median Total Employed
median median median Higher No WR
(still low Paid
paid)
2002
31.0 14.0 21.8 14.1 49.9 5.0 3.2 11.0 100.0
2003
26.8 11.6 25.3 13.2 50.1 7.3 3.5 12.3 100.0
2004
23.1 10.3 28.5 15.1 53.9 5.3 4.2 13.6 100.0
Source: H Buddelmeyer, W-S Lee, M Wooden and H Vu, ‘Low Pay Dynamics: Do Low Paid Jobs Lead to
Increased Earnings and Lower Welfare Dependency Over Time?’.
Note: Employed No WR are those who were employed but no wage rate could be calculated due to insufficient
information, UE are unemployed, and NILF are not in the labour force.
4.46 In addition, research into the extent of wage movements beyond the low
pay threshold showed that around 10.3 per cent of workers earning less
than two-thirds median earnings in 2001 earned between two-thirds
median and three-quarters median earnings in 2004. A further
28.5 per cent earned between three-quarters median earnings and
median earnings, while 15.1 per cent earned in excess of median
earnings. In other words, 43.6 per cent of low paid workers in 2001
were earning in excess of three quarters of median earnings by 2004.34
4.47 Overall, the Melbourne Institute’s results showed that over half of all
low paid workers made the transition from low to higher pay within one
to two years, while less than a quarter were in low paid jobs three years
later. Importantly, more than 80 per cent of low paid workers were still
in employment three years later.
34
A further 5.3 per cent were employed. However, a wage rate could not be calculated due to incomplete
information on earnings and/or hours worked.
54 Australian Government Submission
Wage transitions of casual and non-casual low paid workers
4.48 Research also shows that casual workers have good prospects of moving
to higher paid and non-casual jobs.
4.49 A study conducted by Buddelmeyer, Wooden and Ghantous estimated
that around 32 per cent of casual workers found a non-casual job within
a year and just over 49 per cent found a non-casual job within three
years.35
International research conducted into earnings mobility
4.50 International research also illustrates that a significant proportion of low
paid workers made the transition to higher paid work, while others
remain in low paid employment.
4.51 A United Kingdom study found that 55.6 per cent of individuals that
were paid at or below the National Minimum Wage (NMW) at their
initial interview moved to employment paid above the NMW one year
later.36 A further 32.3 per cent remained in employment where they were
paid at or below the NMW, 2.9 per cent exited to unemployment, and
9.2 per cent became inactive (or not in the labour force).
4.52 The study also found that the wage adjustment was substantial for many
people moving to positions that paid above the NMW, particularly given
that the data only covered a 12 month period. Men were more likely to
move out of minimum wage payment into higher pay than women,
while the size of the upward adjustment was also typically greater for
men than for women.
4.53 The characteristics most closely associated with an individual remaining
at or below the NMW were employment in a small firm, working part-
time, or private sector employment.
4.54 Individuals with post-school qualifications were significantly less likely
to remain at or below the NMW and more likely to exit to employment
35
H Buddelmeyer, M Wooden and S Ghantous, (2006) ‘Transitions from Casual Employment in Australia’,
Project 09/05, Melbourne Institute of Applied Economic and Social Research, University of Melbourne, pages 28-
29. Around 37.1 per cent found permanent jobs, 6.5 per cent found positions where employees are on fixed-term
contracts, and 5.7 per cent were self employed.
36
M K Jones, R J Jones, P D Murphy and P J Sloane, ‘The Dynamics of the National Minimum Wage: Transitions
Between Labour Market States’, Institute for the Study of Labor (IZA), Discussion Paper No. 1690, July 2005.
Australian Government Submission 55
above the NMW than individuals without formal academic
qualifications.
4.55 The above analysis and research, both in Australia and internationally,
show the importance of low paid jobs, particularly in relation to
providing opportunities to the unemployed and those not in the labour
force to enter the workforce and become more socially included.
4.56 Low paid employment, however, is not necessarily a long-term
phenomenon for many workers. A large number of low paid employees
transition to higher paying and more stable jobs within one to three
years. For these employees low paid jobs are an important stepping
stone.
4.57 There are, however, a still significant number of employees who are
persistently low paid. For these employees, minimum wages provide an
important safety net and must provide a fair living wage.
4.58 It is for this reason that the Government urges the Panel to balance its
considerations around the impact of any minimum wage increase on
three important factors, namely:
• Employment growth and thereby the availability of low paid jobs
(discussed further in the next section);
• The incentives for the unemployed and those not in the labour
force to seek employment, as well as the quality of low paid jobs
(in terms of remuneration) (discussed later in this chapter); and
• The relative living standards and needs of the low paid,
particularly for those who are persistently low paid (discussed in
Chapter 5).
4.59 These three important considerations are all relevant to the Panel’s
obligation to promote social inclusion through increased workforce
participation.
The impact of minimum wage increases on employment
4.60 The impact of minimum wages on employment growth needs to be
considered relative to other factors, particularly broader economic
56 Australian Government Submission
conditions. In the Australian context, in the years proceeding the recent
economic downturn, moderate increases in minimum wages were
accompanied by strong employment growth. This suggests that in
periods of strength the demand for labour is such that any impact of
minimum wage increases on employment levels is tempered, if not, in
fact, neutralised.
4.61 The majority of academic studies analysing the relationship between
minimum wages and employment have found that increases in minimum
wages have a negative relationship with employment, but there is no
consensus about the strength of the relationship. There are however a
number of studies that did not find a statistically significant relationship,
and a small number that found positive employment effects.
4.62 As noted in Chapters 2 and 3, however, even though both the economy
and labour market have shown positive signs of recovery to date, there
remain some downside risks to the economic outlook over the next year
and a number of vulnerable groups and regions still face labour market
disadvantage. As such, the Panel must give consideration to the impact
that its decision may have on employment given the importance of
supporting employment growth throughout the economic recovery.
Transfer payments, earnings and incentives to work
4.63 The previous section illustrated the important role that low paid jobs
play in assisting non-employed individuals into the workforce and
employed individuals into higher paid employment. This section will
show that the interaction of the tax-transfer and wages systems provides
the unemployed with incentives to pursue employment opportunities.
4.64 DEEWR modelled the interaction between the tax-transfer system and
the wages system to establish the potential rewards to households from a
member finding a job at the FMW (referred to from here on as a
‘minimum wage job’) or a low paid job paying $628 per week.37
37
This amount is consistent with the amount used elsewhere in this submission in relation to low pay and is close
to the current C10 (Tradespersons) classification in the Manufacturing and Associated Industries and Occupations
Award 2010 [MA000010].
Australian Government Submission 57
4.65 DEEWR assessed a broad range of hypothetical households including
lone persons, couples with no children, and lone parents and couples
with dependent children of various ages.
4.66 More specifically, the analysis considered the potential impact of
earnings from a minimum wage and low paid job on combined
household income from sources such as income support (Newstart
Allowance), other transfer payments (such as Parenting Payment and
Family Tax Benefits) and other earnings (if other members of the
household were already receiving earned income from employment).
Note that the resulting incentive results do not take into account any
potential additional costs stemming from employment, such as child
care or travel costs.
Single earner families
4.67 Table 4.5 below shows the incentives for the various family types when
a single earner takes on a minimum wage job.
4.68 Of all the household scenarios analysed, incentives to take on a
minimum wage job were highest for single adults. Single adults were
118 per cent (or $270) per week better off financially in net terms by
taking on a job paying the FMW of $543.78 per week.
4.69 Financial incentives to take on a minimum wage job were lower for
couples and lone parent households with dependents but are still
substantial. The reason the incentives were lower for these groups is due
to the part or full withdrawal of some transfer payments as earnings rise.
Further, as these households receive larger transfer payments than single
adults, any increase in earnings will automatically be less
proportionately.
4.70 Despite the lower level of incentives, these households were still better
off financially with one member working compared with their previous
state of joblessness.
58 Australian Government Submission
Table 4.5 Single earner households – one member formerly
unemployed accepts a job paying the FMW $543.78 per week
Household Transfer Transfer Tax & Disposable Improvement
Type payments payments after Medicare income after in relative
before member finding job finding job financial
finds low paid position (%)
job
(A) (B) (C) (D) (E)
(=$543.78+B– (=(D-A)/A)
C)
Single Adult 228.00 (NSA) 0 46.45 497.33 118%
(UE on
Newstart)
Couple with no
children –
neither working
– both on 411.50 (NSA) 113.48 (NSA) 28.46 628.80 53%
Newstart – one
gets a minimum
wage job
Couple with 1 411.50 (NSA) 113.48 (NSA)
child aged 7 – 122.20 (FTB) 140.61 (FTB)
neither working 533.70 (total) 254.09 (total)
– both on 39.28 758.59 42%
Newstart – one
gets a minimum
wage job
Couple with 2 205.75 (NSA) 0
children, aged 4 205.75 (PP) 113.48 (PP)
and 7 years – 234.55 (FTB) 252.96 (FTB)
neither working
646.05 (total) 366.44 (total)
– one on
38.30 871.92 35%
Newstart, one
on Parenting
Payment – one
gets a minimum
wage job
Couple with 2 411.50 (NSA) 113.48 (NSA)
children aged 9 214.32 (FTB) 232.73 (FTB)
and 11 – 625.82 (total) 346.21 (total)
neither working
38.30 851.69 36%
– both on
Newstart – one
gets a minimum
wage job
Source: DEEWR Modelling using various sources.
Note: NSA refers to NewStart Allowance, FTB is Family Tax Benefit, PP is Parenting Payment, and YA is Youth
Allowance.
Australian Government Submission 59
Table 4.5(cont.) Single earner households – one member formerly
unemployed accepts a job paying the FMW $543.78 per week
Household Transfer Transfer Tax & Disposable Improvement
Type payments payments after Medicare income after in relative
before member finding job finding job financial
finds low paid position (%)
job
(A) (B) (C) (D) (E)
(=$543.78+B– (=(D-A)/A)
C)
Lone parent 290.25 (PP) 106.06 (PP)
with 1 child 165.55 (FTB) 165.55 (FTB)
aged 4 years, 455.80 (total) 271.61 (total)
receiving PP – 34.83 780.56 71%
one gets a
minimum wage
job
Lone parent 249.65 (NSA) 0
with 1 child 145.32 (FTB) 145.32 (FTB)
aged 9 years, 394.97 (total) 145.32 (total)
receiving NSA 38.30 650.80 65%
– one gets a
minimum wage
job
Lone Parent 290.25 (PP) 110.98 (PP)
with 2 children 257.67 (FTB) 257.67 (FTB)
aged 4 and 6 547.92 (total) 368.65 (total)
years, receiving 34.74 877.69 60%
PP –one gets a
minimum wage
job
Lone Parent 249.65 (PP) 0
with 2 children 237.44 (FTB) 237.44 (FTB)
aged 9 and 11 487.09 (total) 237.44 (total)
years, receiving 38.30 742.92 53%
NSA –one gets
a minimum
wage job
Source: DEEWR Modelling using various sources.
Note: NSA refers to NewStart Allowance, FTB is Family Tax Benefit, PP is Parenting Payment, and YA is Youth
Allowance.
4.71 Table 4.6 below repeats the above analysis by showing the incentives
for the various family types when a single earner instead accepted a low
paid job paying $628 per week.
4.72 Again incentives to take on low paid work were highest for single
adults. Single adults were 148 per cent (or $338) per week better off
financially in net terms by taking on a low paid job.
4.73 At the other end of the scale, incentives to take on a low paid job were
lower for couples and lone parent households with dependents. All
60 Australian Government Submission
household types, however, are substantially better off taking a low paid
job compared with being jobless.
Table 4.6 Single earner households – one member formerly
unemployed accepts a low paid job paying $628 per week
Household Type Transfer Transfer Tax & Disposable Improvement
payments payments after Medicare income in relative
before member finding job after financial
finds low paid finding job position (%)
job
(A) (B) (C) (D) (E)
(=$628+B– (=(D-A)/A)
C)
Single Adult (UE 228.00 (NSA) 0 62.39 565.61 148%
on Newstart)
Couple with no
children – neither
working – both on
411.50 (NSA) 62.95 (NSA) 33.64 657.31 60%
Newstart – one
gets a low paid
job
Couple with 1 411.50 (NSA) 62.95 (NSA)
child aged 7 – 122.20 (FTB) 145.32 (FTB)
neither working – 533.70 (total) 208.27 (total) 58.08 778.19 46%
both on Newstart
– one gets a low
paid job
Couple with 2 205.75 (NSA) 0
children, aged 4 205.75 (PP) 62.95 (PP)
and 7 years – 234.55 (FTB) 257.67 (FTB)
neither working –
646.05 (total) 320.62 (total)
one on Newstart, 52.97 895.65 39%
one on Parenting
Payment – one
gets a low paid
job
Couple with 2 411.50 (NSA) 62.95 (NSA)
children aged 9 214.32 (FTB) 237.44 (FTB)
and 11 – neither 625.82 (total) 300.39 (total)
working – both on 52.97 875.42 40%
Newstart – one
gets a low paid
job
Source: DEEWR Modelling using various sources.
Note: NSA refers to NewStart Allowance, FTB is Family Tax Benefit, PP is Parenting Payment, and YA is Youth
Allowance.
Australian Government Submission 61
Table 4.6 (cont.) Single earner households – one member formerly
unemployed accepts a low paid job paying $628 per week
Household Type Transfer Transfer Tax & Disposable Improvement
payments payments after Medicare income in relative
before member finding job after financial
finds low paid finding job position (%)
job
(A) (B) (C) (D) (E)
(=$628+B– (=(D-A)/A)
C)
Lone parent with 290.25 (PP) 72.37 (PP)
1 child aged 4 165.55 (FTB) 165.55 (FTB)
years, receiving 455.80 (total) 237.92 (total) 59.44 806.48 77%
PP – gets a low
paid job
Lone parent with 249.65 (NSA) 0
1 child aged 9 145.32 (FTB) 145.32 (FTB)
years, receiving 394.97 (total) 145.32 (total) 52.97 720.35 82%
NSA – gets a low
paid job
Lone Parent with 290.25 (PP) 77.29 (PP)
2 children aged 4 257.67 (FTB) 257.67 (FTB)
and 6 years, 547.92 (total) 334.96 (total) 56.92 906.04 65%
receiving PP –gets
a low paid job
Lone Parent with 249.65 (PP) 0
2 children aged 9 237.44 (FTB) 237.44 (FTB)
and 11 years, 487.09 (total) 237.44 (total) 52.97 812.47 67%
receiving NSA –
gets a low paid
job
Source: DEEWR Modelling using various sources.
Note: NSA refers to NewStart Allowance, FTB is Family Tax Benefit, PP is Parenting Payment, and YA is Youth
Allowance.
Second earner households
4.74 DEEWR also modelled the incentives for various family types when the
second potential earner in the household also took on a minimum wage
job (see Table 4.7 below).
4.75 The modelling shows that households were better off financially when a
second member of the household secured a minimum wage job. A
household headed by a couple with no children was 58 per cent (or
$366) better off with both partners working, while a couple with one
child aged seven was 37 per cent (or $281) better off.
62 Australian Government Submission
Table 4.7 Second earner in household one partner is already working in
low paid job ($543.78 per week) while the other partner
formerly unemployed finds a minimum wage jobs per week
($543.78)
Household Type Disposable Transfer Tax & Disposable Improvement
income - P1 payments Medicare income with in relative
working (see after P2 finds both working financial
column D job in low paid position (%)
above) jobs
(A) (B) (C) (D) (E)
(=$1087.56+B– (=(D-A)/A)
C)
Couple with no
children - one
person working,
other on NSA -
628.80 (total) 0 92.91 994.65 58%
unemployed
partner (P2) gets
a minimum wage
job
Couple with 1
child age 7 - one
person working,
other on NSA -
758.59 (total) 44.60 (FTB) 92.91 1039.25 37%
unemployed
partner (P2) get a
minimum wage
job
Source: DEEWR Modelling using various sources.
Note: P1 refers to person already in low paid job, P2 is second person finding low paid job and FTB is Family Tax
Benefit
4.76 Similarly, Table 4.8 below shows that households were also
substantially better off financially when a second member of the
household secured a low paid job. Households comprising a couple with
no children were 72 per cent (or $474) better off when both partners
were working. In addition, a household comprising a couple with a child
aged seven was 50 per cent (or $392) better off with both partners
working.
Australian Government Submission 63
Table 4.8 Second earner in household – one partner is already working
in low paid job ($628 per week) while the other partner
formerly unemployed finds a low paid job paying $628 per
week
Household Type Disposable Transfer Tax & Disposable Improvement
income - P1 payments Medicare income in relative
working (see after P2 finds with both financial
column D job working in position (%)
above) low paid
jobs
(A) (B) (C) (D) (E)
(=$1256+B– (=(D-A)/A)
C)
Couple with no
children - one
person working,
657.31 (total) 0 124.79 1131.21 72%
other on NSA -
unemployed partner
(P2) get low paid job
Couple with 1 child
age 7 - one person
working, other on
778.19 (total) 38.71 (FTB) 124.79 1169.92 50%
NSA - unemployed
partner (P2) get low
paid job
Source: DEEWR Modelling using various sources.
Note: P1 refers to person already in low paid job, P2 is second person finding low paid job and FTB is Family Tax
Benefit
4.77 The above DEEWR modelling illustrates that there are financial benefits
for both single earner families and second earner households when an
individual takes up a minimum wage job. The improvement in relative
financial position is higher for those who find a job paying above the
minimum wage.
4.78 Accordingly, the Panel can be confident that any real increase granted to
minimum wages will have a positive impact on the incentives to find
paid employment.38
4.79 The balance which needs to be achieved by the Panel in its consideration
is between the need for any additional incentive and the impact
minimum wage increases may have on employment growth.
38
It is important to note that the Newstart Allowance is indexed to growth in the Consumer Price Index. Not
increasing the minimum wage by at least this amount will therefore reduce employment incentives.
64 Australian Government Submission
Conclusion
4.80 This chapter has argued that employment is a key factor in achieving
social inclusion and plays an important role in assisting non-employed
individuals becoming socially included. Specifically, the research and
analysis presented shows that:
• Jobs with low pay are an important entry point to employment for
non-employed individuals seeking to join the workforce and can
be a stepping stone to higher paid and more stable forms of work
for many workers.
• The interaction of the tax-transfer system and the minimum
wages system must provide those who are not working with real
incentives to seek and accept employment.
4.81 It is important that the Panel balances these considerations in arriving at
its decision. Promoting social inclusion through increased workforce
participation is about both providing the opportunity for employment
and, once employed, enhancing the quality of employment. Minimum
wages have a role to play in both.
Australian Government Submission 65
Chapter 5: Relative living standards
and the needs of the low paid
Introduction
5.1 In reviewing and determining minimum wages, the Australian
Government notes the requirement of the Panel to have regard to the
relative living standards and the needs of the low paid.
5.2 There is little up-to-date data currently available that enables in-depth
analysis of the adequacy of minimum wages in providing for the needs
of the low paid. In this regard, the Government supports the research
currently being undertaken by FWA for the 2010-11 Annual Wage
Review looking at approaches to defining and measuring relative living
standards and the needs of the low paid.
5.3 In submissions to future FWA wage reviews the Government will
provide a more detailed analysis of the needs of the low paid. The
Government will also investigate whether there is a need to undertake
further research in this area to compliment the work of FWA.
5.4 This chapter presents information on recent trends in relative living
standards. Additional analysis of the incidence of low pay and the
characteristics of low paid employees based on the first seven waves of
the HILDA survey is also included.
5.5 The chapter then examines means of addressing relative living standards
and needs of the low paid in relation to both minimum wages and
through the tax-transfer system.
What does this parameter mean in relation to setting
minimum wages?
5.6 As noted in Chapter 1, the relative living standards and needs of the low
paid wage setting parameter is one of a more balanced set of legislative
criteria that take account not only of the economic environment but also
considerations for a broader safety net of fair minimum wages.
66 Australian Government Submission
5.7 The Government recognises that minimum wage increases have an
important role to play in ensuring relative living standards and the needs
of the low paid are provided for. For minimum wage employees in low-
income households who do not transition to higher paying jobs,
minimum wages provide an important safety net. In relation to the cost
of living, there is a community expectation that wage increases,
especially for the low paid, are sufficient to cover general cost of living
increases.
5.8 The Government submits that the tax-transfer system and access to
training and education can also be efficient means of assisting low
income earners, complementing a fair minimum wage.
5.9 As noted in Chapter 2, the Australian economy has performed
remarkably well against its international peers and better than expected
during a period of global economic turmoil. While growth is still
expected to be subdued in the near term, the Government is of the view
that workers paid minimum wages should share in the benefits of any
economic recovery.
Recent trends in relative living standards
Prices – Consumer Price Index and Analytical Living Cost
Indices
5.10 As noted above, cost of living increases have a bearing on the ability to
maintain relative living standards and the needs of the low paid. As
such, the minimum wage freeze in last year’s decision should be
considered in line with the various cost of living data shown below.
While the cost of living has been increasing, the wages of the lowest
paid Australians have been standing still.
5.11 The Government does not believe this is a fair or just outcome. That is
why the Government urges the Panel to grant a considered real increase
in minimum wages that, at a minimum, reflects the cost of living
increases since the last minimum wage rise.
5.12 To assist the Panel, the section below re-presents information on the
available cost of living measures and their recent and expected future
movements.
Australian Government Submission 67
5.13 To take into account the effect of increases in prices, the common
practice is to adjust nominal wages for the effect of inflation using ABS
Consumer Price Index (CPI) data or other measures of price increases to
produce estimates of ‘real’ wages. The CPI measures changes in prices
of a typical basket of goods acquired by the average household.
5.14 The most recent data show that headline CPI increased by 0.5 per cent in
the December quarter 2009 and by 2.1 per cent over the year to the
December quarter 2009. Underlying inflation (average of the RBA's
Weighted median and Trimmed mean measures), increased by
0.6 per cent in the December quarter 2009 and by 3.4 per cent over the
year to the December quarter 2009.
5.15 The annual headline inflation rate (2.1 per cent) for the December
quarter 2009 is now at the lower end of the RBA’s target band of
2-3 per cent, up from a decade low of 1.3 per cent in the September
quarter 2009. The annual underlying inflation rate (3.4 per cent),
however, remains above the RBA’s target band.
5.16 In its February 2010 Statement of Monetary Policy, the RBA stated that
the headline CPI inflation is expected to ‘pick up over the next couple of
quarters, as the temporary factors that have held it down drop out of the
calculations’, while rent inflation and large increases in some utilities
prices are expected to add to the measured CPI increase.
5.17 However, the RBA expects underlying inflation to gradually moderate
further before picking up a little towards the end of this year, reflecting
both a pick-up in wage growth from low levels as the labour market
tightens and higher levels of capacity utilisation in the economy. While
the RBA revised up both the headline and underlying annual inflation
rate forecasts for the December quarter 2010, they both remain within its
2-3 per cent per annum target band.
5.18 Recently the ABS introduced the Analytical Living Cost Indexes
(ALCIs) for Selected Australian Household Types. In contrast to the
CPI, the ALCIs have been designed to answer the question: ‘By how
much would after tax money incomes need to change to allow
households to purchase the same quantity of consumer goods and
services that they purchased in the base period?’
68 Australian Government Submission
5.19 The ALCIs are produced as a by-product of the CPI and are the
conceptually preferred measures for assessing the effect of changes in
prices on the out-of-pocket living expenses experienced by four types of
Australian households: Employee households; Age pensioner
households; Other government transfer recipient households; and Self-
funded retiree households.
5.20 The cost of living for employee households as measured by the ALCI
increased by 0.7 per cent in the December quarter 2009. Over the year to
December quarter 2009, the cost of living for employee households
increased by 0.4 per cent. Over the same period, the CPI rose by
2.1 per cent.
5.21 Despite the methodological differences between the CPI and the ALCIs,
changes in living costs for each household type have historically tracked
closely to the CPI. Since the ALCIs were established in the June quarter
1998, the living costs of employee households increased by
41.6 per cent. Over the same period, the CPI increased by 40.1 per cent39
(see Chart 5.1).
39
CPI re-referenced to base of June quarter 1998=100 to facilitate longer term comparisons with living cost
indexes.
Australian Government Submission 69
Chart 5.1 Trends in ALCI and CPI, June 1998 to December 2009
145.0
140.0
135.0
130.0
Index Numbers
125.0
120.0
ALCI - Employee
115.0
CPI
110.0
105.0
100.0
Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09
Year
Source: ABS Analytical Living Cost Indexes for Selected Australian Household Types (Cat. No. 6463.0),
December 2009.
5.22 In the remainder of this chapter, analysis of real wages is undertaken
using CPI data.
Minimum wage outcomes
5.23 As explained in Chapter 2, the Australian economy experienced
extraordinary economic times over the past year and a half as the impact
of the global economic downturn unfolded. Indeed, the AFPC noted that
2009 was the most challenging economic environment to confront a
minimum wage setting body for decades.40
5.24 In its 2009 decision, the AFPC decided to maintain minimum wages at
current (2008) levels. Currently, a full-time adult employee working 38
hours per week on the FMW earns $543.78 per week or approximately
$28 300 per year.
5.25 The impact of the 2009 decision was a reduction in the FMW of
1.2 per cent over the year to September 2009 in real terms.41
40
Australian Fair Pay Commission, Wage Setting Decision and Reasons for Decision, 2009, page 25.
41
Assuming a date of effect of 1 October 2009 had the AFPC awarded an increase.
70 Australian Government Submission
5.26 However, it is important to bear in mind that low income households
have benefited from the economic stimulus measures implemented by
the Government (in both the Economic Security Strategy and the Nation
Building and Jobs Plan – as outlined in Chapter 2), as well as the change
to the tax thresholds which came into effect on 1 July 2009.
5.27 There has been much comment and criticism of the AFPC’s 2009
decision. While the needs of the low paid are clearly not served if jobs
are lost, the Government was disappointed with the AFPC’s decision
and believes it did not get the balance right.
Table 5.1 Minimum wage increases for the FMW and C10 Pay Scale in
annualised terms(a)
FMW (C14) C10
Increase Nominal Real Increase Nominal Real
$/wk (%) (%) $/wk (%) (%)
Australian Industrial
Relations Commission
1997 10.00 2.9 2.5 10.00 2.3 2.5
1998 14.00 3.9 3.2 14.00 3.1 2.4
1999 12.00 3.2 2.1 12.00 2.6 1.5
2000 15.00 3.9 0.7 15.00 3.1 0.0
2001 13.00 3.2 -2.6 15.00 2.6 -2.8
2002 18.00 4.4 1.5 18.00 3.5 0.7
2003 17.00 3.9 1.2 17.00 3.2 0.5
2004 19.00 4.2 1.7 19.00 3.5 1.0
2005 17.00 3.6 1.1 17.00 3.0 0.5
Australian Fair
Pay Commission
2006 18.07 3.7 0.6 18.10 3.1 0.0
2007 12.34 2.4 0.0 12.33 2.0 -0.4
2008 21.66 4.1 -0.8 21.66 3.5 -1.4
2009 0.00 0.0 -1.2 0.00 0.0 -1.2
Notes: (a) Prior to the establishment of the Australian Fair Pay Commission, increases in the FMW generally
occurred on an annual basis. With the Australian Fair Pay Commission's first two decisions the periods between
increases were 18 months and 10 months respectively. Accordingly, for comparability, the decisions have been
presented in annualised terms.
5.28 Table 5.1 shows that since the FMW was established in 1997, for the
most part annual wage reviews have resulted in real increases in the
FMW. For example, under the AIRC’s Safety Net Reviews, real
increases in the FMW ranged from 0.7 per cent in 2000 to 3.2 per cent
in 1998. The only exception was a real decline of 2.6 per cent in 2001
where the introduction of the GST impacted on price movements.
Outcomes under the AFPC’s four decisions have been more mixed, with
a real increase awarded in 2006, maintenance of real wages in 2007 and
Australian Government Submission 71
real declines in 2008 (albeit due to a spike in inflation in that year) and
in 2009 (in light of the global economic downturn).
5.29 As shown in Table 5.1, growth in the FMW on a year-to-year (or
decision-to-decision) basis can be positive or negative in real terms.
However, over the longer term, the FMW has increased in real terms.
Over the last 10 years, the FMW has increased from $385.40 per week
in 1999 to $543.78 per week in 2009. This is equivalent to a real
increase of 2.3 per cent.42 Therefore the value of the FMW has been
preserved relative to the prices of goods and services.
5.30 Table 5.1 also shows that in real terms, the FMW generally increases by
a slightly higher rate (or decreases by a lower amount) when compared
with higher award classifications such as the C10 (Tradespersons)
classification in the Manufacturing and Associated Industries and
Occupations Award 2010 [MA000010]. This is a result of annual wage
decisions being increased by flat dollar amounts rather than percentage
increases. Over the last 10 years, the real value of the C10 pay rate has
fallen by 3.1 per cent.
5.31 Another way of comparing the relative value of the FMW is to compare
its real growth (2.3 per cent) to the growth of wages generally prevailing
in the community. Over the last 10 years43, ABS National Accounts data
show that real wages44 have increased by 13.8 per cent.
5.32 Finally, the relative value of the FMW can be judged by the minimum
wage ‘bite’ which is defined as the ratio of the adult minimum wage to
full-time median earnings. The Australian minimum wage bite is high
among Organisation of Economic Co-operation and Development
(OECD) countries, as shown in Table 5.2, but has declined substantially
in recent years.
42
June quarter 1999 (CPI period applicable to AIRC’s 1999 decision) to September quarter 2009 (CPI period
applicable to AFPC’s 2009 decision).
43
June quarter 1999 to September quarter 2009 – this period is chosen to align with dates of effect of minimum
wage increases.
44
As measured by average non-farm compensation per employee deflated by the implicit price deflator for final
consumption expenditure – households from the ABS Australian National Accounts: National Income,
Expenditure and Product publication (Cat. No. 5206.0) – AusStats spreadsheets 2, 3 and 20. The data are
seasonally adjusted.
Broader real wage increases, however, are affected by changes in the composition of employment, in particular,
the shift over time toward more highly skilled jobs, combined with increased premia for skills as a result of
technological change.
72 Australian Government Submission
Table 5.2 Minimum Wage ‘Bite’: adult minimum wages relative to
full-time median earnings, mid-2007A
Country Percentage
France 61.6
New Zealand 58.7
B
Australia
- LFS 54.5 G
- ES 51.4
Greece C 47.8
Belgium 53.1
Ireland 49.9
D
United Kingdom 46.7
Netherlands E 42.9 (50.0)
Canada 40.7
Portugal F 41.2 (48.0)
F
Spain 33.8 (39.4)
Japan 33.9
United States 29.6
Source: OECD estimates based on OECD Earnings Structure Database, minimum wages and median earnings
for full-time workers, July 2007, as cited in the UK National Minimum Wage - Low Pay Commission Report 2009,
Table A5.2, page 306. Available from http://www.lowpay.gov.uk/lowpay/report/pdf/7997-BERR-
Low%20Pay%20Commission-WEB.pdf (accessed 13 May 2009.
Notes:
A
In all cases, the minimum wage refers to the basic rate for adults. In some cases, the median earnings data for
full-time workers for mid-2007 are estimates based on extrapolating data for earlier years in line with other
indicators of average earnings growth. All earnings data are gross of employee social security contributions.
B
Two estimates of median earnings are available based on the Labour Force Survey (LFS) and an Enterprise
Survey (ES). In each case, the data refer to weekly earnings. The minimum wage refers to the Federal Minimum
Wage.
C
Minimum wage for blue collar workers.
D
Differs from the LPC estimate in Chapter 2 (Table2.3), as the OECD estimate is for full-time, rather than all,
employees.
E
The ratio including 8 per cent supplement for holiday pay is given in parentheses.
F
The ratio including annual supplementary pay of two additional months of salary is given in parentheses.
G
The estimate of the Australian minimum wage bite in this table precedes the 2007 AFPC Decision and therefore
understates the true value of the bite in 2007. This estimate is derived by expressing the FMW following the
AFPC’s 2006 Decision ($511.86 per week) as a proportion of full-time median earnings in August 2007 ($940.00
per week). The true value of the bite in 2007 was 55.5 per cent.
Australian Government Submission 73
5.33 Despite Australia’s position internationally, Chart 5.2 below shows that
there has been a steady decline in the minimum wage bite from
61.9 per cent in 1997 to 54.4 per cent in 2008 (latest data). This decline
is due to full-time median earnings increasing faster than the FMW
(72.1 per cent compared with 51.3 per cent in nominal terms) over the
period.
Chart 5.2 Minimum wage ‘bite’
64.0
62.0
(FMW as a percentage of full-time median weekly earnings)
60.0
Minimum Wage Bite (%)
58.0
56.0
54.0
52.0
50.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: DEEWR calculation using wage data and data from ABS Employee Earnings, Benefits and Trade
Union Membership (Cat. No. 6310.0).
5.34 In summary, while Australia’s minimum wages remain high by
international standards, the value of the FMW, in both real and relative
terms, has declined.
Inequality
5.35 Analysis of inequality can be conducted by using measures of earnings
or incomes. Earnings inequality (and increases in the dispersion of
earnings) are generally the result of earnings rising faster at the top of
the distribution relative to those at the bottom. Analysis of inequality
based on earnings measures does not take into account the impact of
changes to the tax-transfer system.
74 Australian Government Submission
5.36 Unlike earnings inequality, analysis of income inequality takes into
account the important role the tax-transfer system has to play in
mitigating inequality.
Earnings inequality
5.37 Table 5.3 below presents the change in real earnings across the
workforce over the past two decades to 2008 (latest data). While our
main interest lies in recent changes over the last decade, we include an
earlier period for historical perspective. Real earnings for the 10th
percentile (the point on the earnings distribution at which 90 per cent of
employees earn more) have experienced a real increase in their earnings
of 3.5 per cent since 1998.
5.38 The higher paid, however, have experience noticeably faster growth
rates since 1998. Earnings for the 90th percentile have increased by
19.4 per cent over this period. This is also faster than the rate of growth
in median earnings.
Table 5.3 Growth in real earnings for full-time adult non-managerial
employees by selected percentiles, 1988 to 2008
% Change
1988 to 1998 1998 to 2008 2006 to 2008
10th percentile 8.6 3.5 2.4
25th percentile 10.6 6.5 3.1
50th percentile 13.7 10.0 4.3
75th percentile 16.5 13.5 5.6
90th percentile 17.2 19.4 7.1
Mean earnings 15.0 12.9 5.2
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), unpublished data.
5.39 Table 5.3 also shows that the trend of faster growth in real earnings at
the top of the earnings distribution relative to that at the lower end has
continued. Between May 2006 and August 2008, real earnings for the
10th percentile increased by 2.4 per cent, compared with 7.1 per cent for
the 90th percentile.
5.40 The cumulative effect of faster earnings growth at the top end of the
distribution has resulted in an increase in earnings dispersion over time,
as shown in Chart 5.3. However, it is important to keep in mind that the
chart also shows that earnings at the lowest end of the distribution have
increased in real terms, albeit at a slower rate.
Australian Government Submission 75
Chart 5.3 Real weekly total earnings (full-time adult non-managerial
employees) by percentile, 1996 to 2008
140
135
10th percentile
25th percentile
130
Real FT adult non-managerial weekly earnings
50th percentile
125 75th percentile
by percentile (Index 1996 = 100)
90th percentile
120
Mean earnings
115
110
105
100
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, published and unpublished data.
Note: The EEH Survey was not conducted in 1997, 1999, 2001, 2003, 2005 and 2007. Results for these years have
been obtained through linear interpolation.All series deflated by the all groups CPI. Index base 1996 = 100.
5.41 The increasing earnings dispersion in Australia is also evident when
examining trends in the ratio of earnings of the high paid to median
earnings, earnings of the high paid to that of the low paid and median
earnings to that of the low paid.
5.42 When analysing these data, it is important to understand that groups
across the earnings distribution are not constant. Many employees would
have transited across the earnings distribution groups over time.
5.43 Table 5.4 shows the following:
• The ratio of earnings of the high paid (P90) to median earnings
(P50) has gradually increased over the past 20 years. While those
at P90 earned 1.55 times median earnings in 1988, they earned
1.74 times median earnings in 2008.
• The ratio of earnings of P90 to P10 has increased at a faster rate,
from 2.19 in 1988 to 2.72 in 2008.
76 Australian Government Submission
• The ratio of median earnings (P50) to the earnings of the low
paid (P10) has increased at a slower rate from 1.41 in 1988 to
1.57 in 2008.
Table 5.4 Change in the ratio of earnings of selected percentiles, 1998 to
2008
1988 1998 2008
P90/P10 2.19 2.36 2.72
P90/P50 1.55 1.60 1.74
P50/P10 1.41 1.47 1.57
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), various years.
5.44 Movements in earnings, however, can be affected by both changes in
wages and compositional changes. The impact of compositional change
on the growth of earnings is not a new phenomenon. Compositional
change to the workforce also affects the distribution of earnings.
Income inequality
5.45 As noted above, the distribution of earnings continues to widen over
time and can impact on the relative living standards of the low paid.
There is potential, however, to compensate for some of the inequality
arising from the greater earnings dispersion through changes to the tax-
transfer system. That said, changes in the tax-transfer system have not
mitigated against increasing inequality over the ten years to 2007-08.
5.46 The Government acknowledges, however, that neither policy lever –
minimum wages or the tax-transfer system – is sufficient on its own to
address increasing inequality. Both levers must work in a
complementary fashion to create an effective safety net for the low paid.
5.47 The latest income distribution data from the ABS show there has been
an increase in income inequality in both the short (2005-06 to 2007-08)
and longer (1997-98 to 2007-08) term. ABS data on trends in the
distribution of real disposable household income (that is, household
income after tax and transfers and adjusting for price movements, see
Table 5.5) show that while real equivalised disposable household
income has increased for all household quintiles – including the lowest –
in both the short and longer term:
• Real income for the 10th percentile has increased by 8.6 per cent
between 2005-06 to 2007-08 and by 31.5 per cent between
Australian Government Submission 77
1997-98 to 2007-08, compared with respective increases of
15.4 per cent and 49.6 per cent for the 90th percentile.
• There has been a decline in the income share of all quintiles
except the highest. The income share of the lowest quintile
decreased by 0.4 percentage points, the second quintile fell
0.3 percentage points, the third quintile fell 0.4 percentage points
and the fourth quintile fell by 0.3 percentage points between
2005-06 to 2007-08.
• In comparison, the income share for the highest (fifth) quintile
increased by 1.3 percentage points over the same period. The
pattern of decreasing income share for lower quintiles and
increasing income share for the highest quintile is also evident
over the longer term (1997-98 to 2007-08).
• According to the ABS, a major contributor to some of the
changes in the income distribution measures in 2007-08, when
compared with 2005-06, was the strong rise in wage and salary
incomes (up by 28 per cent).
• The Gini coefficient, an indicator of income inequality that
increases with the degree of inequality, has increased from 0.303
in 1997-98 to 0.314 in 2005-06 and 0.331 in 2007-08.
78 Australian Government Submission
Table 5.5 Real equivalised disposable household income
Change 2005-06 to Change 1997-98 to
2007-08 2007-08
Indicator 1997–98 2005–06 2007-08 (%) (%)
ESTIMATES
Mean income per week
Lowest quintile $ 214 272 299 9.9 39.7
Second quintile $ 342 444 504 13.5 47.4
Third quintile $ 473 607 692 14.0 46.3
Fourth quintile $ 638 805 922 14.5 44.5
Highest quintile $ 1,016 1,368 1,646 20.3 62.0
All persons $ 537 699 811 16.0 51.0
Second and third deciles $ 290 365 409 12.1 41.0
Change 2005-06 to Change 1997-98 to
2007-08 2007-08
Income per week at top of selected percentiles (%) (%)
10th (P10) $ 241 292 317 8.6 31.5
20th (P20) $ 287 364 410 12.6 42.9
30th (P30) $ 343 444 506 14.0 47.5
40th (P40) $ 399 526 596 13.3 49.4
50th (P50) $ 470 605 692 14.4 47.2
60th (P60) $ 549 700 793 13.3 44.4
70th (P70) $ 636 801 915 14.2 43.9
80th (P80) $ 735 938 1,079 15.0 46.8
90th (P90) $ 909 1,179 1,360 15.4 49.6
Change 2005-06 to Change 1997-98 to
2007-08 2007-08
Income share (Percentage point) (Percentage point)
Lowest quintile % 8.0 7.8 7.4 -0.4 -0.6
Second quintile % 12.8 12.7 12.4 -0.3 -0.4
Third quintile % 17.7 17.4 17.0 -0.4 -0.7
Fourth quintile % 23.8 23.0 22.7 -0.3 -1.1
Highest quintile % 37.9 39.2 40.5 1.3 2.6
All persons % 100.0 100.0 100.0 0.0 0.0
Second and third deciles % 10.8 10.4 10.1 -0.3 -0.7
Change 2005-06 to Change 1997-98 to
2007-08 2007-08
Ratio of incomes at top of selected income percentiles (Point change) (Point change)
P90/P10 ratio 3.77 4.05 4.30 0.3 0.5
P80/P20 ratio 2.56 2.58 2.63 0.0 0.1
P80/P50 ratio 1.56 1.55 1.56 0.0 0.0
P20/P50 ratio 0.61 0.60 0.59 0.0 0.0
Change 2005-06 to Change 1997-98 to
2007-08 2007-08
(Point change) (Point change)
Gini coefficient no. 0.303 0.314 0.331 0.017 0.028
Number of households in sample no. 7,025 9,961 9,345 - -
Factor applied to adjust to 2007–08 dollars no. 0.745 0.940 1.000 - -
Source: ABS Household Income and Income Distribution, Australia (Cat. No. 6523.0), 2007-08.
5.48 The above data show an increase in income inequality over time,
primarily as a result of the faster rate of growth in income for higher
income groups.
Who are the low paid?
5.49 In the remainder of this chapter, the Government presents information
on the incidence and characteristics of those low paid workers who are
most likely to benefit from a minimum wage increase using data from
the 2007 HILDA (Wave 7) survey.
Australian Government Submission 79
5.50 Low paid employees are defined as those employees earning up to
two-thirds of median hourly earnings ($16.50 per hour in 2007).45
Characteristics of low paid workers
5.51 Data from the HILDA survey show that low paid workers live in a
diverse range of household structures but share some common
characteristics. Table 5.6 provides full details of the characteristics of
low paid workers.
5.52 In summary:
• Around 21.9 per cent of low paid employees live in couple
households and 16.0 per cent are single adults;
• Low paid employees are more likely to be employed in service
industries such as Retail trade (18.3 per cent), Health care and
social assistance (16.2 per cent), Manufacturing (8.6 per cent)
and Accommodation and food services (8.0 per cent). Together,
these industries accounted for 51.1 per cent of all low paid
workers;
• Low paid workers are more likely to be less educated with
around 33.9 per cent having completed Year 11 education or
below, compared with 19.1 per cent of all employees;
• Low paid workers are much more likely to be less skilled, with
39.9 per cent in the bottom 3 scales46 of the Australian and New
Zealand Standard Classification of Occupations (ANZSCO)
compared with 19.8 per cent of all employees;
• A high proportion of low paid workers live in regional areas;
• Low paid workers are more likely to be women who are working
in part-time jobs;
45
Consistent with the OECD’s definition, low paid workers were defined as those employees earning between the
Federal Minimum Wage and up to two-thirds of the median hourly earnings for full-time employees. The median
earnings for full-time employees are sourced from the ABS Employee Earnings, Benefits and Trade Union
Membership (Cat. No. 6310.0). The threshold for casual employees was adjusted by up rating the standard low
paid bound by 20 per cent. The hourly wage rate thresholds were rounded to the nearest 50 cents.
46
Includes Sales workers, Machinery operators and drivers and Labourers.
80 Australian Government Submission
• Low paid employees are also more likely to work in the private
sector and in small firms.
Table 5.6 Characteristics of low paid workers (2007) (percentage of
total unless otherwise specified)
Low Low
All Low Paid Paid Paid All
Employees Males Females Employees
Gender
Male 39.6 50.0
Female 60.4 50.0
Age
21 to 30 yrs 31.6 38.8 26.9 23.4
31 to 44 yrs 32.0 31.6 32.2 37.2
45 yrs plus 36.5 29.6 40.9 39.4
Country of Birth
Born in Australia 82.6 84.0 81.7 80.1
Born in other countries 17.4 16.0 18.3 19.9
Household type
Couple family without children or others 21.9 22.5 21.5 25.9
Couple family with children less than 15 (without
others) 26.6 25.4 27.3 31.9
Lone Persons 16.0 21.2 12.6 15.0
Education Attainment
Degree or Post Graduate 8.4 5.5 10.2 24.0
Certificate/Diploma 38.4 42.7 35.6 42.8
Year 12 19.3 17.9 20.3 14.1
Year 11or below 33.9 33.9 33.9 19.1
Location
Major City 57.7 52.8 61.0 66.7
Inner Regional Australia 25.8 27.0 25.0 21.8
Outer Regional Australia 15.1 18.9 12.6 9.6
Remote and Very Remote Area 1.4 1.3 1.5 1.9
Employment
Full-time 61.2 81.8 47.8 76.8
Part-time 38.8 18.2 52.2 23.2
Fixed term contract 5.9 6.8 5.3 10.0
Casual 35.1 31.9 37.1 12.2
Permanent 58.8 60.9 57.4 77.5
Private Sector (for profit) 77.1 81.8 74.0 62.7
Public Sector (Government Business Organisation
or Statutory Authority) 2.7 2.0 3.2 6.0
Small Business (0 to 19 employees) 48.6 53.4 45.4 31.4
Medium Business (20 to 99 employees) 28.9 25.4 31.1 30.7
Large Business (100 employees plus) 20.8 20.2 21.1 37.2
Average Tenure with current employer (years) 4.7 5.0 4.5 6.8
Average Years in current occupation (years) 7.0 7.6 6.5 9.5
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
Australian Government Submission 81
Table 5.6 (cont.) Characteristics of low paid workers (2007) (percentage
of total unless otherwise specified)
Low Low
All Low Paid Paid Paid All
Employees Males Females Employees
Occupation
Managers 6.1 7.8 4.9 10.8
Professionals 9.4 9.1 9.6 28.9
Technicians and trades workers 11.1 21.8 4.1 12.8
Community and personal service workers 15.7 9.1 20.0 10.1
Clerical and administrative workers 17.8 4.9 26.2 17.6
Sales workers 16.0 8.5 20.9 6.4
Machinery operators and drivers 9.5 19.2 3.2 6.4
Labourers 14.4 19.5 11.1 7.0
Industry
Agriculture, forestry and fishing 4.1 8.5 1.3 1.6
Mining 0.9 1.6 0.4 2.3
Manufacturing 8.6 11.7 6.6 9.7
Electricity, gas, water and waste services 0.5 0.7 0.4 1.2
Construction 5.8 11.7 1.9 6.0
Wholesale trade 4.3 6.8 2.6 2.7
Retail trade 18.3 14.0 21.1 7.8
Accommodation and food services 8.0 5.2 9.8 3.3
Transport, postal and warehousing 3.0 4.6 1.9 4.6
Information media and telecommunications 1.7 1.0 2.1 2.9
Financial and insurance services 2.6 1.0 3.6 4.5
Rental, hiring and real estate services 1.4 1.3 1.5 1.2
Professional, scientific and technical services 4.1 2.3 5.3 7.7
Administrative and support services 4.0 3.9 4.1 2.6
Public administration and safety 3.9 6.2 2.4 9.2
Education and training 6.7 4.9 7.9 12.5
Health care and social assistance 16.2 6.5 22.6 15.7
Arts and recreation services 2.1 2.9 1.5 1.5
Other services 3.7 4.9 3.0 2.8
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
5.53 Table 5.7 reveals that 23.9 per cent of low paid employees were working
on a casual part-time basis and 45.1 per cent were working on a
permanent full-time basis.
82 Australian Government Submission
Table 5.7 Adult workers by employment contract type
Low Paid Employees All Employees
Fixed-term Contract Full-time 5.0 8.1
Fixed-term Contract Part-time 0.9 1.9
Casual Full-time 11.2 3.7
Casual Part-time 23.9 8.6
Permanent Full-time 45.1 65.0
Permanent Part-time 13.8 12.7
Total 100.0 100.0
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
Incidence of low paid employment
5.54 HILDA data reveal that the incidence of low paid employment increased
between 2003 and 2007, with around 14.6 per cent of all employees low
paid in 2007 compared with 10.6 per cent in 2003 (see Table 5.8).
5.55 Women are more likely to be low paid – 17.7 per cent of all female
employees were low paid in 2007 compared with 11.6 per cent of male
employees.
Table 5.8 Incidence of low pay by gender
2003 2004 2005 2006 2007
Male 8.7 9.1 10.3 11.3 11.6
Female 12.5 13.3 16.8 17.0 17.7
All 10.6 11.2 13.5 14.1 14.6
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2009.
Household income distribution
5.56 A decision to support all low paid workers through increases in
minimum wages will deliver the same absolute wage increase to low
paid workers residing in more wealthy households and less wealthy
households. This latter group is much more dependent on increases in
minimum wages to sustain their standard of living. The same can be said
about changes in marginal tax rates which effectively raise the
disposable income of individuals.
5.57 There are two ways of examining the household distribution of low paid
employees. The first is to examine the distribution of low paid
employees among all households. The second is to look at the
distribution of low paid employees among households with at least one
employee.
Australian Government Submission 83
5.58 With regard to the first method, clearly the most disadvantaged people
in Australia are located in households which do not have somebody in
the labour force. These people will not benefit from changes to
minimum wages.
5.59 According to the 2007 HILDA data, the distribution of low paid workers
among households with at least one employee are located more towards
the lower end of the scale. According to the 2007 HILDA data,
38.1 per cent of low paid workers are in the bottom three deciles of the
income distribution for households with employees. Alternatively,
around 19.4 per cent of low paid workers were in the top three
household income deciles (see Chart 5.4).
Chart 5.4 Distribution of low paid workers earning two-thirds median
weekly earnings by household income decile among
households with employees – 2007
18.0
15.9
16.0
14.0
12.9
12.2
12.0
11.1
10.0
10.0 9.6
8.8
(%)
8.1
8.0
6.4
6.0
4.9
4.0
2.0
0.0
Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Decile 10
Source: Household Income and Labour Dynamics Australia (HILDA) Survey Release 7.0, February 2010.
Means to address relative living standards and needs of
low paid
5.60 This section examines the ways in which the relative living standards
and needs of the low paid can be addressed. The two main tools include
the provision of appropriate minimum wages to boost the incomes of the
84 Australian Government Submission
low paid and the utilisation of the tax-transfer system to target assistance
to low paid individuals and households.
Welfare improving potential of minimum wage increases
5.61 Decisions made to protect the living standards of low paid workers
should be undertaken in the knowledge that while these workers
themselves are low paid, they are spread more evenly throughout the
household income distribution. A decision made to support all low paid
workers through minimum wage increases will deliver the same pay rise
to those living in wealthier households as well as those in relatively low-
income households. The same can be said with changes in marginal tax
rates which also effectively raise the disposable income of individuals.
5.62 The Government, however, notes the importance of minimum wages in
addressing the needs of the low paid, particularly those who are
persistently low paid. Increases in minimum wages boost wages for
some workers, which may flow through to increase household spending
and thereby support jobs. Chapter 4 noted that there are a proportion of
low paid workers that remain in low paid employment for long periods
of time and are therefore dependent upon increases in minimum wages
to support their living standards. Minimum wage increases therefore
form an important safety net for these employees.
5.63 As discussed earlier in this chapter, analysis of inequality data indicates
that earnings dispersion has widened over time. Although real earnings
for the 10th percentile have increased, the higher paid have experienced
noticeably faster growth rates. Increases in minimum wages can assist in
narrowing the earnings dispersion and thereby the relative position of
low paid workers by improving the earnings for workers at the lowest
end of the distribution.
5.64 Low-income households spend a greater proportion of their income on
basic needs relative to wealthier households. Increases in the cost of
living, therefore, affect low-income households to a greater extent. Over
the year to the December quarter 2009, strong price rises were recorded
for essential commodities such as electricity (15.7 per cent), water and
sewerage (14.1 per cent), fruit (4.6 per cent) and rents (5.4 per cent). It
is important for Panel to give consideration to the strong increases in
these necessities when arriving at its decision.
Australian Government Submission 85
The tax-transfer system
5.65 The tax-transfer system also has a significant role to play in alleviating
income inequality and supporting the living standards of low paid
workers. In particular, the tax-transfer system allows a much greater
degree of targeting assistance to low paid families and therefore is an
important tool for addressing the relative living standards and needs of
the low paid. Under the previous Government the tax-transfer system
did not mitigate against an overall increase in inequality.
5.66 Not only does the transfer system provide a substantial share of funds to
many low income households, it provides those funds in a way which
can be tailored to the particular circumstances of low paid workers.
5.67 The Government is aware that the economic downturn has had adverse
economic impacts on the low paid. As noted in Chapter 2, the
Government has provided targeted measures to assist low and middle
income households. In conjunction with personal income tax cuts, these
measures have delivered a fiscal boost to groups most likely to be
negatively affected by the flow-on effects of the global economic
changes.
5.68 In the AFPC’s 2009 minimum wage decision, it noted that the
Government’s changes to the tax-transfer system and fiscal stimulus
packages have provided real increases in disposable income for most
households.47
Benefits of tax-transfer changes over the last five years
5.69 Table 5.9 shows the percentage change in real disposable income
resulting from changes to the tax-transfer system for selected household
types over the period 1 January 2005 to 1 January 2010. The
households are all assumed to have private incomes equal to the FMW.
5.70 It is important to note that the FMW increased only slightly in real terms
over this period by around 0.5 per cent. Accordingly, the changes to
real household income shown in the table are almost exclusively due to
tax-transfer effects.
47
Australian Fair Pay Commission, Wage Setting Decision and Reasons for Decision, 2009, page 8.
86 Australian Government Submission
5.71 Out of the selected household types examined, over the last five years,
single income couples (partner receiving Newstart allowance) without a
dependent child received the highest increase in real disposal income of
14 per cent, followed by double income couples without a dependent
child where both earn 50 per cent of the FMW and single income
couples (partner receiving parenting payment) with a child aged 2 (both
received an increase of 13 per cent). Double income couples with no
dependent children, both earning the FMW received the lowest increase
(5 per cent) over the period.
Table 5.9: Changes in real disposable income by selected household
types – 1 January 2005 to 1 January 2010
Household type Change (%)
Single person (age 21-54) 8
Single income couple (ages 21-54). Income support is Newstart allowance 14
Two income couple (both FMW). 5
Two income couple (both 50% of FMW). Income support is Newstart allowance 13
Single parent (age 21-54; child age 2). Income support is parenting payment 11
Single income couple (ages 21-54; child age 2). Income support is parenting payment 13
Source: DEEWR modelling
5.72 Charts 5.5 and 5.6 below show the percentage change in real disposable
income for the household types in the table above over an income range
from $0 to $200 000. The FMW is included in the charts for reference.
Both charts include a single person with no dependents for reference.
5.73 What the charts show is that for all of the household types examined,
households at the lower end of the distribution with private income
(including those around the FMW) have, on average, benefited
reasonably well in relative terms, particularly compared with middle
income households. Households at the upper end of the scale have also
generally benefited substantially as well.
5.74 These trends can be explained by the tax-transfer changes made over the
last five years. For instance, at the lower end of the distribution a
combination of increases in the Low Income Tax Offset and reduced
taper rates on some transfer payments have given a significant boost to
disposable incomes for those with private income. At the same time, tax
cuts have tended to be higher, in percentage terms, for the higher end of
the income scale. Middle income households, however, have not
received the benefit of transfer payment improvements (or not much),
and had proportionally smaller tax cuts.
Australian Government Submission 87
5.75 It is important to note, however, that while lower income households
have generally benefited the most from the tax-transfer changes over
that last five years, income inequality has also increased. As noted
earlier in this chapter, the Gini coefficient has increased from 0.314 in
2005-06 to 0.331 in 2007-08. This illustrates that benefits received by
lower income households have not been enough to mitigate the increase
in inequality.
Chart 5.5: Change in real disposable income for various household types
without children - 2005 to 2010 (January 2010 $ values)
20.0%
Single income couple
Single adult
15.0%
Change in real disposable income (%)
Double income couple
10.0%
5.0%
FMW (as at 1 january 2010)
0.0%
‐5.0%
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000
Yearly private income
Single adult Single income couple (100:0) Double income couple (50:50)
Source: DEEWR modelling
88 Australian Government Submission
Chart 5.6: Change in real disposable income for various household types
with children - 2005 to 2010 (January 2010 $ values)
20.0%
Single income couple
with 1 child aged 2
Single adult
15.0%
Change in real disposable income (%)
10.0%
5.0%
Sole Parent
with 1 child
aged 2 FMW (as at 1 January 2010)
0.0%
‐5.0%
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000
Yearly private income
Single Adult Sole parent ‐ 1 child aged 2 Single income couple ‐ 1 child aged 2
Source: DEEWR modelling
Forthcoming taxation initiatives
5.76 Forthcoming taxation initiatives will assist low income earners by
supporting their living standards and preserving the purchasing power of
those reliant on minimum wages.
5.77 From 1 July 2010, as part of personal income tax cuts announced in the
2008-09 Budget, the threshold at which the marginal tax rate increases
from 15 cents in the dollar to 30 cents in the dollar will rise from
$35 001 to $37 001.
5.78 The Low Income Tax Offset (LITO) will also increase from $1350 to
$1500 but will continue to be reduced by 4 cents for every dollar of
annual income over $30 000. As a result of these changes taxpayers will
not pay income tax in 2010-11 until their annual income exceeds
$16 000. It will increase the net pay of a worker on the FMW by almost
$3.00 a week (or $150 in annual terms).
5.79 This measure will allow low income earners, including part-time
workers, to keep more of their earnings and maintain their disposable
incomes.
Australian Government Submission 89
Conclusion
5.80 The minimum wage freeze in 2009 has resulted in a real decline in
minimum wages. While the cost of living has been increasing, the
wages of the lowest paid Australians have been standing still.
5.81 The Government does not believe this is a fair or just outcome, nor is it
consistent with the new legislative parameters. That is why the
Government urges the Panel to grant a considered real increase in
minimum wages that, at a minimum, reflects the cost of living increases
since the last minimum wage rise in 2008.
5.82 Minimum wage increases have an important role to play in ensuring
relative living standards and the needs of the low paid are provided for.
5.83 For minimum wage employees in low-income households who do not
transition to higher paying jobs, minimum wages are an important part
of existing safety net arrangements.
5.84 It is important, however, that the Panel finds the right balance between
the financial needs of low paid workers and considering the potential
impact on employment growth.
5.85 The tax-transfer system has an important role to play in minimising
income inequality. The Government urges FWA to take into account
ongoing tax and transfer policy initiatives which are aimed at supporting
the incomes and therefore living standards of low paid workers.
90 Australian Government Submission
Australian Government Submission 91
Chapter 6: Equal remuneration
Introduction
6.1 As noted in Chapter 1, for the first time, the FW Act includes the
concept of equal pay for work of ‘equal or comparable’ value.
Previously in federal workplace relations legislation the equal pay
concept had been limited to equal pay for work of ‘equal’ value. The
new expanded concept is included in the legislative parameters that the
Panel must take into account when setting minimum wages.
6.2 This chapter outlines the relationship between pay equity and minimum
wage setting. In doing so, the Government submits that pay equity
considerations are best addressed through means other than general
minimum wage rulings.
6.3 This chapter also provides a snapshot of the latest gender pay gap data
to allow FWA to take the equal remuneration parameter into account as
well as to help inform general debate of this issue.
Equal remuneration provisions under the Fair Work Act
2009
6.4 Like the Workplace Relations Act 1996 (WR Act) before it, the FW Act
formally recognises the objective of equal pay through the principle of
equal pay for work of equal value.
6.5 For the first time in federal workplace relations legislation, however, the
FW Act includes the expanded concept of equal pay for work of ‘equal
or comparable’ value. The expansion of the equal remuneration
principle to include the term comparable value provides for the
consideration of pay equity from a perspective broader than formal
equality.
6.6 The Explanatory Memorandum to the FW Act notes that the expansion
of the principle allows:
…comparisons to be carried out between different but comparable
work for the purposes of this Part. Evaluating comparable worth
92 Australian Government Submission
(for instance between the work of an executive administrative
assistant and a research officer) relies on job and skill evaluation
techniques. The Bill also removes the current requirement for the
applicant to demonstrate (as a threshold issue) that there has been
some kind of discrimination involved in the setting of
remuneration. Instead, an applicant must only demonstrate that
there is not equal remuneration for work of equal or comparable
value.48
6.7 The principle of equal pay for work of equal or comparable value is
covered in the FW Act in two ways:
• Firstly, equal remuneration is included as part of the principles
relating to the safety net of minimum wages and conditions.
• Secondly, the FW Act specifically provides for the making of
equal remuneration orders.
Principles relating to the safety net of minimum wages and
conditions
6.8 Section 134 of the FW Act sets out the modern awards objective which
provides a guide to FWA in exercising various functions or powers
relating to modern awards. The overall objective is to ‘ensure that
modern awards, together with the National Employment Standards,
provide a fair and relevant minimum safety net of terms and conditions’.
Among other things, FWA must take into account the principle of ‘equal
remuneration for work of equal or comparable value’.
6.9 The equal remuneration principle is also a specific parameter of the
minimum wages objective, outlined in Section 284 of the FW Act.49 In
establishing and maintaining a safety net of fair minimum wages, FWA
must also, among other things, take into account the principle of equal
remuneration for work of equal or comparable value.
48
Paragraph 1191-1192 of the Explanatory Memorandum to the FW Bill.
49
Previously, the AFPC’s wage-setting parameters in Section 23 of the Workplace Relations Act 1996 (WR Act)
did not include a specific parameter concerning equal remuneration. However, the AFPC in exercising any of its
powers, was still required to ‘apply the principle that men and women should receive equal remuneration for work
of equal value’ (s222 of the WR Act), as well as take into account other anti-discrimination legislation.
Australian Government Submission 93
The expansion of the equal remuneration principle to
include equal remuneration for work of equal or
comparable value
6.10 As noted above, pay equity beyond formal equality is affected by gender
segmentation in the labour market. That is, female-dominated industries
can attract much lower levels of pay than other industries. As many
female-dominated industries also have high award or pay-scale reliance,
one possibility is that a large minimum wage increase (or series of large
increases) could help promote pay equality.
6.11 The Government, however, recognises that an excessive minimum wage
increase for the purpose of reducing the gender pay gap could prove
counterproductive in terms of its negative effects on overall
employment.
6.12 The impact of minimum wage-setting decisions on promoting pay
equity (if any) is ambiguous and is an area that requires further
investigation.
6.13 While the minimum wages objective sets the parameters (including
equal remuneration) that FWA must take into account in performing its
wage-setting functions, the FW Act does not prescribe how these
parameters are to be taken into account.
6.14 Section 290 of the FW Act provides powers to the President of FWA to
direct investigations and reports. In particular, subection 290(1) states:
The President may give a direction under section 582 requiring
that a matter be investigated, and that a report about the matter be
prepared, for consideration in an annual wage review.
6.15 The Government considers work value and pay equity to be issues that
may be suitable for referral by the President of FWA for further
investigation under subection 290(1) of the FW Act. The Government
encourages FWA to consider the use of this option should submissions
in relation to minimum wage setting raise specific matters relating to
pay equity and work value matters that require detailed consideration.
6.16 More importantly, the Government submits that pay equity issues are
best addressed through alternative means such as individual pay equity
94 Australian Government Submission
or ‘work value’ cases on an industry or occupational basis, enterprise
bargaining or the low paid bargaining stream, where a more thorough
examination of the issue can be undertaken rather than through general
minimum wage rulings.
6.17 In this light, the Government notes that the Australian Services Union
(ASU) has made an application to Fair Work Australia for an equal
remuneration order for the social and community sector.
6.18 The Government will participate in the hearing of the ASU’s application
and will present evidence and make submissions concerning the
approach to be adopted in applying the pay equity principle.
6.19 As indicated above, the Government believes bargaining is one
mechanism that can be used to help promote pay equity. The
Government has long held the view that enterprise bargaining is
important in boosting productivity and has delivered economic benefits
to both employers and employees over the past decade and a half. This
is why enterprise bargaining is at the centre of the FW Act.
6.20 The Government recognises, however, that over that period not all
employers and employees have had access to the benefits of enterprise
bargaining and many low-paid employees in areas such as community
services, cleaning and child care continue to rely on their award
minimum rate of pay.
6.21 This is why the FW Act establishes a new stream of multi-employer
bargaining to assist low paid employees and their employers who,
historically, have not had much experience or success with
enterprise-level collective bargaining.
6.22 The introduction of a low-paid bargaining stream, in addition to the
improved safety net, is important because it focuses on the benefits of
bargaining for both employees and employers in sectors like aged care,
community services and cleaning. The low-paid stream is about FWA
helping the parties to negotiate and make an agreement that delivers the
improvements to productivity and service delivery that can support
further improvement to wages and conditions beyond the safety net.
Australian Government Submission 95
Latest gender pay gap data
6.23 On 23 November 2009, the House of Representatives’ Standing
Committee on Employment and Workplace Relations tabled its report
into pay equity and associated issues related to increasing female
participation in the workforce.
6.24 The Government welcomes the release of that report and is currently
considering all the recommendations included in the report. The
recommendations represent important measures to further guide actions
needed to address the gender pay gap.
6.25 In the interim to help inform FWA, the Government provides an updated
analysis of the gender pay gap using published and unpublished ABS
data.
Pay gap trends
6.26 The gender pay gap based on Average Weekly Ordinary Time Earnings
(AWOTE) for full-time adults is currently 17.5 per cent. Analysis of the
gender pay gap based on average weekly earnings, however, ignores
differences in the hours worked by males and females and differences in
their employment status.
6.27 Based on data from the latest ABS Average Weekly Earnings survey, the
average hourly gender pay gap widened to 13.4 per cent in November
2009 from 12.2 per cent in November 2008. This takes the hourly
gender pay gap to its highest level since May 1996 (13.9 per cent). As
shown in Chart 6.1 above, the hourly gender pay gap has been on a
steady upward trend since the early 2000s. This may be due, in part, to
the strength in conditions and wages in traditionally male dominated
industries such as Mining in recent years.
96 Australian Government Submission
Chart 6.1 Hourly full-time adult gender pay gap
15.0%
14.0%
Hourly full-time adult gender pay gap (%)
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09
Source: ABS Average Weekly Earnings (Cat. No. 6302.0), November 2009, original data and ABS, Labour
Force, Australia, Detailed, Quarterly (Cat. No. 6291.0.55.003), November 2009.
Note: Average hourly earnings are calculated by DEEWR by dividing full-time adult average weekly earnings (in
original terms) (from ABS Average Weekly Earnings Cat. No. 6302.0) by the number of hours worked by full-time
employees, aged 20 years and over in all industries except Agriculture, forestry and fishing for the relevant
quarter (from ABS Labour Force, Australia, Detailed, Quarterly, November 2009 Cat. No. 6291.0.55.003).
Average Hours
6.28 During the 2000s, women have on average done 10 hours less paid work
per week than men. While the gap has narrowed from an average of
10.3 hours in 2001, it was still on average 9.2 hours in 2009 (see Table
6.1).
6.29 Even when comparing average full-time hours, men still did around
four additional hours of paid work per week over the same period (see
Table 6.2).
Australian Government Submission 97
Table 6.1: Average weekly hours worked – all employed persons (2001
to 2009)
Average hours (all employed persons)
Male Female Difference (hours)
2001 38.1 27.8 10.3
2002 38.4 27.8 10.6
2003 38.5 28 10.5
2004 38 27.8 10.2
2005 38.2 28.1 10.1
2006 37.5 27.9 9.6
2007 36.8 27.4 9.4
2008 37.9 28.3 9.6
2009 37 27.8 9.2
Source: ABS Labour Force, Australia, Detailed - Electronic Delivery (Cat. No. 6291.0.55.001), January 2010.
Table 6.2: Average weekly hours worked – full-time employed persons
(2001 to 2009)
Average hours
(full-time employed persons) Difference (hours)
Male Female
2001 41.8 37.4 4.4
2002 42.2 37.7 4.5
2003 42.4 38.1 4.3
2004 41.7 37.5 4.2
2005 42 37.9 4.1
2006 41.2 37.4 3.8
2007 40.5 36.6 3.9
2008 41.8 37.7 4.1
2009 41.1 37.3 3.8
Source: ABS Labour Force, Australia, Detailed - Electronic Delivery (Cat. No. 6291.0.55.001), January 2010.
Method of setting pay
6.30 Unpublished data from the August 2008 ABS Employee Earnings and
Hours (EEH) survey show that the gender pay gap varies according to
method of setting pay. For example, the average hourly gender wage
gap was greater in every type of individual agreement than it was in
every type of collective agreement. Table 6.3 below shows that gender
wage gaps ranged from -5.2 per cent for award or pay-scale reliant
employees (revealing that females on awards or pay scales earn more
than males on awards or pay scales) to 33.8 per cent for state registered
individual agreements.50
50
The very small proportion of employees on state registered individual agreements means this estimated gender
wage gap is less reliable. These employees (primarily from Western Australia) are too few to quantify.
98 Australian Government Submission
Table 6.3 Hourly gender wage gap for non-managerial adults by
method of setting pay, August 2008
Adult hourly
ordinary time earnings
($) Gender pay gap
Method of setting pay Male Female (%)
Award or pay scale only 19.20 20.20 -5.2
Collective agreement (Federally registered) 30.60 27.10 11.4
Collective agreement (State registered) 34.10 31.30 8.2
Collective agreement (unregistered) 35.50 31.20 12.1
Individual arrangement (Federally registered) 30.10 26.00 13.6
Individual arrangement (State registered) 30.50 20.20 33.8
Individual arrangement (unregistered) 31.80 26.90 15.4
All methods of setting pay 30.30 26.70 11.9
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, unpublished data.
6.31 The gender pay gap is explained in part by the higher proportion of
non-managerial adult females who are award-reliant (19.1 per cent)
compared with males (12.9 per cent) in August 2008. As shown in
Table 6.3, award-reliant employees (both males and females) earn
significantly less than employees on other types of industrial
instruments.
6.32 Given the higher award-reliance of females it is plausible that the
AFPC’s decision in 2009 to freeze minimum wages may have had a
negative impact on the gender pay gap.
State/Territory
6.33 Using 2008 ABS EEH data, as Table 6.4 below shows, state/territory
gender pay gaps vary from 5.0 per cent in Tasmania to 20.5 per cent in
Western Australia. Most of the variation was due to variation in male
hourly rates (which varied by $9.50). Leaving aside the ACT, which has
relatively high female earnings, female earnings varied by $3.00. The
relatively high gender pay gap in Western Australia is influenced by
high male earnings. In Western Australia, the male average hourly rate
was the second highest and $2.80 above the national average. The
female rate, on the other hand, was $0.40 below the national average.
Australian Government Submission 99
Table 6.4 Gender pay gap (non-managerial adults) by state/territory -
hourly ordinary time rates of pay (August 2008)
Adult hourly Gender pay
ordinary time earnings ($) gap
State/Territory Male Female (%)
NSW 31.10 27.80 10.6
VIC 29.50 26.30 10.8
QLD 29.30 25.40 13.3
SA 28.30 25.10 11.3
WA 33.10 26.30 20.5
TAS 26.10 24.80 5.0
NT 29.60 26.30 11.1
ACT 35.60 31.50 11.5
Australia 30.30 26.70 11.9
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, unpublished data.
Occupation
6.34 Using 2008 ABS EEH data, as Table 6.5 below shows, the occupation
with the lowest gender pay gap was Machinery operators and drivers at
11.3 per cent and the highest was Technicians and trades workers at
20.3 per cent.
Table 6.5 Gender pay gap for non-managerial adults by occupation -
hourly ordinary time rates of pay (August 2008)
Adult hourly
ordinary time earnings ($)
Occupation Male Female Gender pay gap (%)
Managers 41.40 33.50 19.1
Professionals 42.80 35.50 17.1
Technicians and trades workers 28.60 22.80 20.3
Community and personal service workers 27.20 22.60 16.9
Clerical and administrative workers 28.10 24.40 13.2
Sales workers 25.50 20.60 19.2
Machinery operators and drivers 26.60 23.60 11.3
Labourers 21.90 19.40 11.4
All occupations 30.30 26.70 11.9
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, unpublished data.
6.35 Gender pay gaps were below the ‘all occupations’ gap in only two
occupations. This indicates that there is a degree of labour market
segmentation by occupation.
6.36 That is, if the proportions of men and women were broadly the same
across all occupations, then the total gender pay gap would be close to
the average of all the individual occupation pay gaps. The fact that the
'all occupations' gap is nearer to the lowest individual occupation gaps
means that higher proportions of women are employed in those
100 Australian Government Submission
occupations (not to be confused with proportions of employees in the
occupation who are female) with the lowest average pay rates overall.
Industry
6.37 Using 2008 EEH survey data, as Table 6.6 below shows, gender pay
gaps by industry ranged from 1.9 per cent for Accommodation and food
services to 28.6 per cent for Financial and insurance services.
Table 6.6 Gender pay gaps for non-managerial adults by industry -
hourly ordinary time rates of pay, August 2008
AHOTE ($) Females as
Gender proportion
Award-reliance Pay Gap of total
Industry (%) Male Female (%) employment (%)
Mining 1.2 46.60 36.60 21.5 15.4
Manufacturing 12.2 27.20 24.30 10.7 24.1
Electricity, gas, water and waste
services 5.4 33.10 30.50 7.9 23.6
Construction 9.1 30.50 25.50 16.4 11.8
Wholesale trade 9.0 27.50 24.30 11.6 34.6
Retail trade 28.9 22.40 20.70 7.6 57.7
Accommodation and food
services 50.3 20.90 20.50 1.9 56.1
Transport, postal and warehousing 8.3 27.60 26.50 4.0 22.5
Information media and
telecommunications 5.6 35.90 30.30 15.6 41.6
Financial and insurance services 2.2 41.30 29.50 28.6 54.3
Rental, hiring and real estate
services 20.2 28.50 24.10 15.4 46.2
Professional, scientific and
technical services 5.4 40.10 28.70 28.4 45.3
Administrative and support
services 33.9 26.40 24.00 9.1 57.9
Public administration and safety 3.6 33.00 30.50 7.6 48.4
Education and training 8.4 34.00 31.40 7.6 70.5
Health care and social assistance 17.2 36.50 27.70 24.1 80.8
Arts and recreation services 14.2 27.70 23.00 17.0 41.6
Other services 25.4 23.80 22.30 6.3 41.7
All industries 16.5 30.30 26.70 11.9 46.8
Source: ABS Employee Earnings and Hours (Cat. No. 6306.0), August 2008, unpublished data.
6.38 Gender pay gaps were below the ‘all industries’ gap in ten industries.
This indicates that there is also a degree of labour market segmentation
by industry, as there was by occupation.
6.39 There is no clear relationship between the size of the gender pay gap
within an industry and the proportion of employees who are women.
Gender pay gaps are high in male dominated industries such as Mining,
Australian Government Submission 101
Construction and Electricity, gas and water supply but are also high in
the female dominated industries of Financial and insurance services and
Health care and social services.
Age
6.40 The gender pay gap also varies by age. The average gap over the last
two decades for full-time employees is smallest amongst younger
workers. The gap increases until around age 55, where it narrows
towards retirement.
Table 6.7: Average gender pay gap by age for full-time employees (1990-
2008)
Age Average pay gap for full-time employees (1990-2008) (%)
15-19 4.4
20-24 7.3
25-29 9.6
30-34 12.2
35-39 18.4
40-44 23.4
45-49 24.0
50-54 25.0
55-59 22.0
60-64 17.0
Source: ABS Employee Earnings, Benefits and Trade Union Membership (Cat. No. 6310.0), August 2008,
Datacube 63100TS0002. Pay gap data in the above table are calculated using mean weekly earnings in
main job.
Conclusion
6.41 It is clear there are many factors which contribute to pay inequities,
including occupational and industry segregation, undervaluation of
women’s work and difficulties in balancing work and caring
responsibilities. It is also clear that despite advances on gender equality
over the last decades, women continue to earn less than men and the pay
gap continues to widen.
6.42 FWA is required when performing its minimum wage setting function,
to take into account the principle of equal remuneration for work of
equal or comparable value. To that end, the Government has provided a
snapshot of the latest gender pay gap data to help inform FWA.
102 Australian Government Submission
6.43 Minimum wage increases can have a positive impact on women’s
earnings and on reducing the overall gender pay gap due to the higher
concentration of women on minimum wages.
6.44 The Government, however, submits that detailed considerations of pay
equity are best addressed through other mechanisms such as through the
forthcoming pay equity test case for the social and community services
sector, enterprise bargaining or the low paid bargaining stream.
Australian Government Submission 103
Chapter 7: Sub-minimum wages
Introduction
7.1 When setting minimum wages, the Panel must take into account the
objective of providing a comprehensive range of fair minimum wages to
sub-minimum wage groups, namely junior employees, employees to
whom training arrangements apply and employees with a disability. In
this regard, the FW Act also places a number of specific obligations on
the Panel in relation to providing for sub-minimum wages groups within
the Annual Wage Review.
7.2 This chapter provides a brief outline of these obligations. The chapter
also discusses the proposal for FWA to conduct a general review of
award wages and training-related conditions for apprentices and trainees
which was raised during the award modernisation process undertaken by
the AIRC.
FWA’s obligations under the FW Act
7.3 As outlined in Chapter 1, the NMW will apply to all award/agreement
free employees51 except junior employees, employees to whom training
arrangements apply and employees with a disability.52 53 The Panel is
required to set special NMWs for award/agreement free junior
employees, employees to whom training arrangements apply and
employees with a disability.54
7.4 The scope of special NMWs is at the discretion of the Panel. A special
NMW may be expressed to apply to all award/agreement free employees
in a particular class (for example, all employees with a disability), or to
a sub-class of those employees.55 If special NMWs are set by sub-class,
the Panel must ensure there is a special NMW for all employees in the
class.
51
Award/agreement free employee is defined in section 12 of the FW Act as a ‘national system employee to whom
neither a modern award not an enterprise agreement applies.’ Item 32 of Schedule 3 and item 47 of Schedule 3A to
the T&C Act also make clear that an employee is not award/agreement free while the employee is covered by a
transitional instrument or Division 2B State instrument.
52
As defined in section 12 of the FW Act.
53
Subsection 294(3) of the FW Act.
54
Paragraph 294(1)(b) of the FW Act.
55
Paragraph 294(1)(b) of the FW Act.
104 Australian Government Submission
7.5 The FW Act requires the Panel to set special NMWs in each review.56
There is an exception, however, for the first annual wage review.57 In
the first annual wage review, the Panel is only required to set a special
NMW for a class (or sub-class) of employees if there is already a special
NMW for those employees in the transitional NMW order.58
7.6 The transitional NMW order sets two special NMWs:
• for employees with a disability where the effects of their
disability do not impact on their productive capacity.
• for employees with a disability in open employment who are
unable to perform the range of duties to the competence level
required because of the effects of disability on their productive
capacity.
7.7 The transitional NMW order does not set special NMWs for junior
employees and employees to whom training arrangements apply. The
transitional NMW also does not set a special NMW for employees with
a disability who are either a junior employee or an employee to whom a
training arrangement applies. These groups of employees with a
disability are excluded from the existing special NMWs.
7.8 In the first annual wage review, therefore, the Panel is only required to
set a special NMW for employees with a disability covered by the two
special NMWs in the transitional NMW order – although it would be
open to the Panel to also set special NMWs for the other classes as well.
If the Panel does not set a full range of special NMWs for all classes in
this review, the President must establish a process for setting special
NMWs for the other classes in the second annual wage review to occur
in 2010-11.59
7.9 The Government notes the statement made by the President on 19
February 2010, that FWA does not intend to set special national
minimum wages for award free junior employees or award free
employees to whom training arrangements apply in the 2010 Annual
Wage Review. Instead, FWA will give consideration to those wages in
56
Paragraph 285(2)(c) and paragraph 294(1)(b) of the FW Act.
57
Subitem 4(1) of Schedule 9 to the T&C Act.
58
Subitem 4(2) of Schedule 9 to the T&C Act.
59
Subitem 4(3) of Schedule 9 to the T&C Act.
Australian Government Submission 105
the latter period of 2010 with a view to including wages for those
classes of employees in the national minimum wage order to be made in
the 2010-11 Annual Wage Review.
7.10 The Government has no objections to this course of action.
Review of apprentice and trainee award wages and
conditions
7.11 The Australian Government is committed to a strong national training
system that delivers economic and social benefits to individual students,
industry and business.
7.12 Vocational Education and Training (VET) plays a central role in
developing the skills base of Australia’s workforce by offering
opportunities for all Australians to pursue their career aspirations.
Traditionally, young people have undertaken training through VET, but
many more Australians are now upgrading their formal skills to meet
new workforce requirements and to better position themselves to take up
emerging opportunities. The national training system now provides
high-quality, industry-driven and nationally recognised training to one
in eight working age Australians.
7.13 In conjunction with states and territories, the Australian Government has
worked with industry to develop a training system that provides
Australians with the vocational skills they need to enter or re-enter the
workforce and to upskill. This cooperation is reflected in the National
Agreement on Skills and Workforce Development, which identifies the
long term objectives of the Australian and state and territory
governments on skills and workforce development and affirms the
common commitment of all governments to work in partnership, and to
work with business and industry, to develop the skills of the Australian
people.
7.14 In terms of workplace relations arrangements for apprentices and
trainees, the recent award modernisation process conducted by the
AIRC, however, reinforced that there is a great diversity and
inconsistency in minimum wage and related provisions for apprentices
and trainees. A number of stakeholders (including the Commonwealth)
106 Australian Government Submission
indicated support for a broad review of wages and conditions for all
award-covered trainees and apprentices, with a view to identifying
opportunities for greater consistency and uniformity across industries
and occupations.
7.15 In a decision dated 2 September 2009, the AIRC agreed such a review
was desirable but did not conduct the review as part of the award
modernisation process. The AIRC indicated the review might be a task
FWA could undertake at the same time as developing the special NMW
for award/agreement free trainees and apprentices in its first or second
annual wage review (in 2010 or 2011).
7.16 The Government would like to reiterate its support that a broad review
of apprentice and trainees award wages and conditions take place as
soon as possible in order to build on and complement the broader VET
reform agenda.
7.17 A review of this nature would align with a proposed review of the
Australian Apprenticeships system with a view to future reform.
7.18 By way of background, the Council of Australian Governments agreed
at its meeting of 7 December 2009, to a set of recommendations that will
drive a national approach to change in the Apprenticeships system,
including better support for the principle of competency based
progression and completion of apprenticeships. Giving effect to this
principle would deliver qualified and skilled workers more quickly, paid
under equitable pay structures based on levels of competency. This will
assist to build a strong skills base in a shorter period to support
economic recovery and growth.
7.19 The Government asks the Panel to indicate in its decision to the 2010
Annual Wage Review whether it or FWA intends to conduct this review
and if so provide interested parties with an indication of the timeframe
and forum that the review will take place. For example, whether it will
form part of a future Annual Wage Review, the 2-yearly review of
modern awards or as a separate review/process.
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