actu submission annual wage review 2015-16 · actu submission to the 2015-16 annual wage review –...

ACTU Submission

Annual Wage Review 2015-16

30 March 2016

ACTU Submission to the 2015-16 Annual Wage Review – Page 1

TABLE OF CONTENTS

Introduction........................................................................................................................................... 3

Our claim ............................................................................................................................................... 5

The form of the increase in minimum wages ............................................................................................................5The timing of the increase in minimum wages ..........................................................................................................6The uniformity of the increase in minimum wages ...................................................................................................6An increase that takes into account all the relevant factors .....................................................................................6

What do minimum wages do? ................................................................................................................ 9

International evidence .............................................................................................................................................10

Who relies on minimum wages in Australia?......................................................................................... 18

Sources and definitions............................................................................................................................................18How many people rely on minimum wages in Australia?........................................................................................19Overview of the minimum wage workforce ............................................................................................................20Industry ....................................................................................................................................................................21Occupation............................................................................................................................................................... 23Employer size ...........................................................................................................................................................26Classification and earnings.......................................................................................................................................26Why has award reliance risen? ................................................................................................................................ 28

The state of the Australian economy .................................................................................................... 32

Economic growth .....................................................................................................................................................33International comparison of economic growth .......................................................................................................33Growth by industry ..................................................................................................................................................34Consumer spending and retail trade........................................................................................................................36Productivity growth .................................................................................................................................................39International comparisons of productivity growth ..................................................................................................44Unit labour costs and the labour share of income...................................................................................................46Profits .......................................................................................................................................................................49Business bankruptcy rates .......................................................................................................................................51Business entry and exit ............................................................................................................................................51Inflation....................................................................................................................................................................54Wages.......................................................................................................................................................................54

The state of the labour market ............................................................................................................. 58

Employment and unemployment ............................................................................................................................58Participation in the labour force and the effect of ageing .......................................................................................60The youth labour market .........................................................................................................................................62Employment by industry ..........................................................................................................................................66Regional dispersion of labour force conditions .......................................................................................................69

The economic outlook.......................................................................................................................... 73

The growth outlook..................................................................................................................................................73The outlook for the labour market ..........................................................................................................................75

Relative living standards and the needs of the low paid ........................................................................ 77

Reversing the decline in relative living standards....................................................................................................78Relative earnings in the more award-reliant industries...........................................................................................82Australia’s minimum wage in international context ................................................................................................ 86Minimum wages and inequality............................................................................................................................... 92The needs of the low paid........................................................................................................................................96


Securing a fair share of productivity growth............................................................................................................99The relevance of taxes and transfers .....................................................................................................................103The effect of taxes and transfers on living standards ............................................................................................106The effect of the cost of working on living standards............................................................................................106

Equal remuneration for men and women workers .............................................................................. 108

Other matters .................................................................................................................................... 112

Juniors, apprentices and trainees ..........................................................................................................................112Employees with disability.......................................................................................................................................112Casual loading ........................................................................................................................................................113Piece rates..............................................................................................................................................................114

References......................................................................................................................................... 115


INTRODUCTION1. The ACTU asks the Fair Work Commission Expert Panel (‘the Panel’) to increase the National

Minimum Wage (‘NMW’) and all award minimum wages up to and including the C10

tradespersons’ rate by $30 per week. We submit that award rates above the C10 rate should be

increased by 3.9%.

2. The Australian economy has grown 3.0% over 2015, exceeding forecast expectations.

Unemployment has declined slightly, also better than forecast. Inflation is also below

expectations. The rate of business bankruptcy is lower than it has been in the twelve years since

the series began. Wages growth continues to be very slow. There is a better than anticipated

macroeconomic environment which justifies our claim for an appropriate increase in the

minimum wage, for the Panel to deliver a modest increase in the relative living standards of the

low paid, and for the economy to absorb and benefit from such an increase. Whatever

eventuates, low paid workers deserve this raise now. If it is granted it will not have adverse

consequences, but rather is likely to contribute to improvement in the economy.

3. The gap between the living standards of low-paid workers and workers on average wages has

stopped growing over the past two and a half years, but this is due to the stall in growth in

average wages over that period. Previously the gap had widened almost every year for decades,

through boom times and recession, and under each of the three institutions that has had

responsibility for adjusting minimum wages.

4. The NMW1 as a percentage of average full-time earnings (AWOTE) is still below the level it was at

August 2010 after the GFC, more than five years ago. Under these circumstances, improving the

relative value of the NMW is necessary but not sufficient, in order to maintain a fair safety net.

5. Awarding the increase we seek in this Review would not only prevent further erosion in the relative

living standards of the low paid, but would advance the vital task of restoring ground that has

been lost. We project that, if awarded in full, the increase we seek would result in the NMW being

restored to around 45.8% of average weekly full-time earnings, up from 43.8%.2 This would be a

modest boost from its current level, but still below its level at Feb 2009 (46.3%) in the context of

almost zero current growth in real wages. We are calling on the Panel to deliver a modest

increase in the relative living standards of the low paid.

6. Raising the minimum wage will also contribute to a reduction in inequality and promote growth in

the economy. This process is being increasingly recognised in a mounting literature that

1 Or the equivalent C14 award rate of pay.2 Projection based on the assumption that average weekly ordinary time earnings (AWOTE) of full-time adults will increase by2.8% over the year to November 2015, as it did in the year to November 2014. This is not a forecast, merely a projectionassumption.


examines the relationship between inequality and economic growth. An increase in the minimum

wage is called upon in order to alleviate inequality and to promote economic growth.

7. Our claim is affordable and appropriate, having regard to all the social and economic criteria the

Panel must take into account. This submission addresses each of these criteria in detail.

8. A fair safety net of minimum wages is necessary to protect the living standards of Australian

workers and to promote economic growth in Australia.


OUR CLAIM9. We submit that the Panel should increase the National Minimum Wage for full-time adults by $30

per week, to $686.90 per week or $18.08 per hour. Award minimum wages up to and including

the benchmark C10 tradespersons’ award rate (and its equivalent rates) should also be

increased by $30 per week. Award rates above the C10 rate should be increased by 3.9%.

10. The minimum rates of pay we propose for each classification level in the Manufacturing and

Associated Industries and Occupations Award 2010 are set out in Table 1.

Table 1: ACTU’s proposed minimum rates of pay

Awardclassification

Current rates Proposed rates

Weekly Hourly Weekly Hourly %increase

Weekly $increase

Hourly $increase

NMW/C14 $656.90 $17.29 $686.90 $18.08 4.6 $30.00 $0.79

C13 $675.90 $17.79 $705.90 $18.58 4.4 $30.00 $0.79

C12 $701.80 $18.47 $731.80 $19.26 4.3 $30.00 $0.79

C11 $725.90 $19.10 $755.90 $19.89 4.1 $30.00 $0.79

C10 $764.90 $20.13 $794.90 $20.92 3.9 $30.00 $0.79

C9 $788.80 $20.76 $819.74 $21.57 3.9 $30.94 $0.81

C8 $812.80 $21.39 $844.68 $22.23 3.9 $31.88 $0.84

C7 $834.60 $21.96 $867.33 $22.82 3.9 $32.73 $0.86

C6 $876.90 $23.08 $911.29 $23.98 3.9 $34.39 $0.90

C5 $894.80 $23.55 $929.89 $24.47 3.9 $35.09 $0.92

C4 $918.80 $24.18 $954.84 $25.13 3.9 $36.04 $0.95

C3 $966.90 $24.44 $1,004.82 $26.44 3.9 $37.92 $2.00

C2(a) $991.00 $26.08 $1,029.87 $27.10 3.9 $38.87 $1.02

C2(b) $1,034.30 $27.22 $1,074.87 $28.29 3.9 $40.57 $1.07

The form of the increase in minimum wages

11. Since 2011, the Panel has awarded percentage increases in the NMW and award minimum

wages at each Review. The considerations that have led the Panel to adopt percentage increases

are important. Award relativities were compressed quite substantially in the 1990s and 2000s.

Percentage increases have prevented further erosion in these relativities, by maintaining them at

their July 2010 levels.

12. However, we believe strongly that a hybrid increase best balances the various considerations that

the Panel must take into account. It would ensure that the largest wage rises, in percentage

terms, go to the lowest paid workers. At the same time, it would prevent any further erosion of the

skill-based wage relativities above the C10 tradespersons’ rate.


The timing of the increase in minimum wages

13. A national minimum wage order made in an Annual Wage Review comes into operation on 1 July

in the next financial year, unless there are exceptional circumstances.3 Similarly, a determination

varying modern award minimum wages that is made in an annual wage review comes into

operation on 1 July unless there are exceptional circumstances.4

14. There are no exceptional circumstances that would warrant a delay in the Panel’s determination

coming into operation. The NMW and modern award minimum wages should be increased with

effect from 1 July.

The uniformity of the increase in minimum wages

15. We submit that all award rates of pay equal to or less than the C10 tradespersons’ rate in the

Manufacturing and Associated Industries and Occupations Award 2010 should be increased by

$30 per week, while all higher rates should rise by 3.9%. There should be no variation in the

increase across industries, occupations, or regions. We agree with the Panel in its 2014-15

Review when it endorsed the observation that “the legislative framework reveals a preference for

consistent variation determinations across all modern awards…[t]he notion of a fair safety net of

minimum wages embodies the concepts of uniformity and consistency of treatment”, and that

“the award-by-award approach to minimum wage fixation, based on sectoral considerations,

advocated by some parties in these proceedings is inimical to the safety net nature of modern

award minimum wages.” 5

16. Just as the increase should be uniform across awards, so too should it be consistent across

geographical regions. There is some variation in economic and labour market conditions across

the country, but nothing that would warrant awarding differential increases or dates of operation

across regions. As demonstrated in this submission, the variation in labour market conditions

across regions of the country is no more than usual.

An increase that takes into account all the relevant factors

17. The ACTU’s submission to this year’s Review, as in previous Reviews, addresses all the statutory

considerations to which the Panel must give consideration.

18. Our claim in this Review is appropriate, taking into account all the factors the Panel must

consider. Crucially, awarding our claim will help to improve the relative living standards of workers

reliant on minimum wages. It will help the low paid to meet their needs. Given the fact that

women are disproportionately represented among the ranks of low-paid workers, our claim will

3 Fair Work Act 2009 (Cth), s.2874 Fair Work Act 2009 (Cth), s.2865 FWC 2015 Annual Wage Review 2014-15 [12],[13]


help to reduce the gender pay gap. It will help to promote social inclusion through workforce

participation, by ensuring that work pays.

19. Our claim is also consistent with the economic factors that the Panel must take into account. It

will encourage growth in the economy.

20. This submission outlines a range of pertinent facts about the state of the Australian economy

that support granting our claim in this Review, including the following:

a. The Australian economy grew by 3.0% over the year 2015, which was faster than many OECD

countries and faster than forecast;

b. Output grew in each of the four most award-reliant industries in 2015. Three of the most

award reliant industries grew faster than GDP, including 4.6% in Health care and social

assistance and 3.7% in Retail trade;

c. Consumer spending grew two percentage points faster than households’ incomes in 2015,

which should assist those industries that rely on consumer spending;

d. The volume of retail sales grew at a solid pace in 2015, including department stores at 4.6%;

e. Labour productivity continues to grow strongly, considerably exceeding the OECD average

consistently;

f. Labour productivity rose in two of the more award reliant areas at almost the same rate as

the whole economy. These are the labour intensive areas of Health care and social

assistance and Accommodation and food services where labour productivity growth is

normally expected to be slower than for the total economy which includes capital intensive

industry;

g. Business bankruptcies have fallen to their lowest level in the post-GFC era. The entry rate for

new businesses continued at the same rate 2014-15. The number of businesses grew

second fastest in the award reliant industry of Health care and social assistance;

h. Employment has grown unexpectedly rapidly over 2015, with around 294, 000 people added

to the workforce: over 40% was in the award reliant area of Health Care and Social

Assistance;

i. The unemployment rate fell a little in the second half of 2015, better than forecast. It

improved in all states in the second half of the year except Tasmania where it still fell over the

year;

j. Employment grew in the four most award-reliant industries, especially Health care and social

assistance and Administrative and support services. It was still solid in Retail trade and


Accommodation and food services. Overall there is no relationship between the level of

award-reliance in an industry and the pace of employment growth; and

k. The indicators of the labour market have exceeded those forecast for 2015 and 2016.

21. We have formulated our claim based on all the social and economic factors which the Panel must

take into account. We submit that it should be granted in full.


WHAT DO MINIMUM WAGES DO?

22. This Chapter examines developments since the AWR 2015 in the findings from research on the

effects of minimum wages, focussing on the effects on employment (other possible effects will be

addressed elsewhere). In its last Decision the Panel remained ‘of the view that modest and

regular increases have a small or even zero impact on employment’.6 The view of the ACTU is that

the increasing pile of literature on minimum wages since then in general further confirms that

finding. The AWR 2015 also said ‘There is legitimate disagreement about what constitutes a

“modest” increase, and we accept that this is a factor supporting a lower increase in times when

unemployment is relatively high.’7 But we find there is little evidence in the literature to support

that even larger percentage increases than the NMW increases awarded in Australia have a

negative consequence for employment. For instance, the wage increases addressed in the classic

study by Card and Krueger and many other researchers are much greater in percentage terms

than the minimum wage increases awarded in Australia, yet the elasticities are statistically

insignificant, very small or positive, including for low income workers.8 That is the percentage

change in employment in response to a given percentage change in the minimum wage is zero,

negative but very small, or positive, while seeking to take into account other factors that could

influence employment.

23. The OECD reports the findings of a number of meta-analyses (studies of studies) showing that

‘overall, the impact of minimum wage increases on employment tends to be small’.9 One feature

across studies is that of heterogeneity. For instance the mechanism of setting and the ratio of

youth to adult wages varies enormously.

24. The Australian system is unique in that it fixes the minimum wage plus a host of other higher

minimum wage levels across occupations and industries more comprehensively than anywhere

else, on a national basis. Yet the empirical findings for the impact of the minimum wage on

employment in Australia are basically similar to those found for other countries, across a range of

statistical methodologies. If minimum wage increases are employment reducing as the standard

neoclassical competitive model anticipates, the effect ought to be reinforced through raising the

structure of NMW and modern awards wages in Australia. Yet this is not observed. We maintain

that even greater increases would not lead to falls in employment, based on the current

literature.

6 FWC 2015 Annual Wage Review 2014-15 [52]7 FWC 2015 Annual Wage Review 2014-15 [52]8 Card and Krueger, Preface to Twentieth Anniversary edition (2016)9 OECD 2015a OECD Employment Outlook, p46


25. Here we review the international and Australian evidence which has presented itself since the

last AWR, 2015. Overall, raising the minimum wage in Australia is not found to be detrimental to

the level of employment, or to bear any particular relationship with unemployment.

International evidence

26. The international literature continues to add to the evidence which supports little or no negative

effect on employment of the introduction of or actual increases in minimum wages, including for

low waged workers and youth. We view this evidence as relevant for the minimum wage in

Australia, notwithstanding its unique system.

27. We observe that the lack of international evidence of a negative relationship between minimum

wage increases and employment is sustained for much larger percentage wage increases than

those awarded in Australia. For instance in the UK NMW increases range from 4.92% in 2011 up

to 5.13% in 2015 for adults.

The USA

28. The number of studies of the impact of the minimum wage in the US has particularly

accelerated. The preface to the Twentieth-Anniversary Edition (2016) of the study by David Card

and Alan Krueger Myth and Measurement The New Economics of the Minimum Wage (1995),

now recognised as classic work, provides a current update. Its review of research since the book

was first published confirms that the ‘basic pattern of findings has been largely similar’ for the

effect of the minimum wage on employment and the distribution of earnings. Moreover ‘surveys

of members of the American Economic Association have found that economists are significantly

less confident that a minimum wage increase adversely affects employment prospects for low-

skilled workers in the 2000s than was the case in the 1970s’, which has been attributed to their

work.10 They argue that the increased take up of minimum wages in policy across countries is

testimony to the acceptance of this evidence. They argue that because minimum wages shift

income towards lower income households with ‘a relatively high marginal propensity to

consume’, then they can increase aggregate demand and raise economic activity.11

29. The work of Card and Krueger has been opposed over the years by that of Neumark and

Wascher, most recently in Neumark et al (2014). Neumark and Wascher used data collected by

themselves for US national panels of states and obtain findings directly opposed to Card and

Krueger which used quasi experiments (comparing adjacent states, with and without minimum

wages in the fast food industry). Criticisms have been levelled at the statistical inferences on both

10 Card and Krueger 2016 pxii11 Card and Krueger 2016 pxxii


sides, relating to the inapplicability of the assumptions about the properties of the standard

errors upon which the test statistics rely. Card and Krueger’s work has been criticised for having

too local a focus to be robustly generalized, in particular that focussing on adjacent states

biasses the employment effects toward zero.12 Neumark and Wascher’s specifications have

been criticised for a lack of control variables resulting in the effects of other factors being falsely

attributed to the minimum wage.13

30. Belman and Wolfson (2014b) also conduct a meta-analysis of the studies of the impact of

minimum wages on employment and hours for the US. It finds there is a ‘negative and generally

statistically insignificant employment effect which is between small and vanishingly small’ and

this includes for youth and the Food and Drink sector.14

31. In the most recent work of significance, Dube et al (2014) sought to take account of spatial and

time varying heterogeneity that was argued by Neumark and Wascher to bias the results for

employment changes between adjacent states towards zero when minimum wages were

introduced in one of them. Neumark and Wascher’s work had criticized the work of Dube et al as

well as that Card and Krueger. When flows across state borders are factored in, even teen and

restaurant employment does not fall due to a minimum wage increase, but labour turnover falls

substantially.15 Allegretto, Dube, Reich and Zipper (2015) used larger and longer panels to show

that teen and other employment does not fall with minimum wage increases, confirming the

findings of other studies including those using other methodologies such as Totty (2014).

The UK

32. The UK adult NMW increases range from 4.92% in 2011 up to 5.13% in 2015, consistently

higher than those for Australia. However caution is required in interpretation of the UK findings

due to institutional differences in which only a single adult minimum wage rate is set, in contrast

with the Australian award structure.

33. The UK Low Pay Commission Report 2015 into the National Minimum Wage found that the

research they had commissioned to inform its decisions, more than 140 projects, ‘has generally

shown that the NMW has led to higher than average wage increases for the lowest paid, with little

evidence of adverse effects on employment or the economy’16. It noted that since the

introduction of the NMW in March 1999, through to September 2014, despite the GFC, the

number employed (including self-employed) rose 13.9% and the number of employees rose

12 Neumark et al 2013, Neumark et al 2014, p2213 Belman and Wolfson 2014a, p.414 Belman and Wolfson, 2014b, Chapter 415 Dube et al 2014, p2816 UK LPC 2015, 10


10.9%.17 It took the labour market less than five years to recover after the GFC during this

period, indicating ‘remarkable resilience’ compared with recoveries of at least eight years after

the previous milder recessions of the 1980s and 1990s, when there had not been a minimum

wage in place (2.123). Moreover the number of employees in low paying industries since

September 1998 just prior to the introduction of the NMW increased 15.8%, faster than the

13.6% for the whole economy [2.127]. The findings for the impact of minimum wage increases on

employment in their 2015 Report were similar to previous years.

34. De Linde Leonard, Stanley and Doucouliagos (2014) undertook a meta-analysis (a study of

studies) of sixteen UK studies of the relationship between employment and the minimum wage,

also cited in UK LPC 2015, 2.165. It found an absence of publication bias (where there is a

pattern of journals favouring particular findings) and ‘no overall practically significant adverse

employment effect’, with the exception of the residential home care industry, and possibly

retail.18

35. Bewley and Wilkinson (2015) in research commissioned for the UK LPC 2015 analysed increases

in the NMW in the UK in 2010 and the impact on job entry from unemployment and hours. It

compared those earning up to 10% more than the NMW before and after the increase with those

directly affected by the NMW increase, and across regions, using differences in differences

estimations. It found some evidence that the minimum wage increase at the GFC recovery

affected different groups of employees differently. Part time female employment was reduced in

the main findings, but this was not robust to sensitivity tests (changing the model specification),

while the employment of other groups generally was not affected or else improved.

36. Riley and Bondibene (2015) analysed the impact of the NMW on productivity in UK businesses

using a differences in differences approach to comparing firms that generally paid the minimum

wage (low-pay firms) compared with firms with workers not dependent on the minimum wage. It

found that productivity in low pay firms was not associated with a reduction in employment.19

37. Andy Haldane, Chief Economist of the Bank of England, said in a speech on 12 November 2015

that the number of people in earning less than a living wage in the UK had increased to 5.8

million and ‘ought to shrink once the Living Wage is introduced’ 20.

17 UK LPC 2015, 2.12218 de Linde et al. 2014 p.1919 Riley and Bondibene 2015. p. 2020 ‘Labour’s Share’, Speech given by Andrew G Haldane, Chief Economist, Bank of England ,Trades Union Congress, London 12November 2015, p.5. http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech864.pdf

http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech864.pdf


Australian Evidence

38. As widely recognised, the number of Australian studies focussing on minimum wages is limited.

Previous AWRs have covered the earlier work extensively, which in general has found a weak

impact of minimum wages on employment, mostly close to zero, with some findings somewhat

more negative for employment amongst youth and low paid.

39. As previous submissions by the ACTU have pointed out, a uniform structure of a national

minimum wage and modern award levels has prevailed across Australia making it more difficult

to obtain regional counterfactuals in order to estimate the effects of an absence of a minimum

wage given otherwise similar conditions (ACTU submission to AWR 2015, 210). Different median

wages and hence wage bites across the states are likely to be largely a consequence of regional

variations in industry structure which are difficult to disentangle from labour market and other

factors.

40. Australian work relating to the minimum wage since the last AWR includes that of the Productivity

Commission’s Inquiry into the Workplace Relations Framework which reported in December 2015

[PC 2015]. It also includes that of the Australian Government in its submission to the AWR 2015.

We first consider the evidence presented in PC 2015 as to the impact of the minimum wage.

The Productivity Commission Inquiry into the Workplace Relations Framework

41. The Productivity Commission [PC] in its Inquiry into the Workplace Relations Framework released

in December 201521 considered the impact of minimum wages extensively.

42. In terms of theory, the PC analysis of the labour market is basically premised on the standard

Marshallian model of markets in which a wage floor raises costs to the firm. In that model if a

minimum wage raises the wage above the level which prevails due to competitive bargaining

between employer and worker, then unemployment will result, holding all else constant. The

negative impact of the minimum wage on the firm’s employment decision would be expected to

be reflected in lower employment throughout the economy and higher unemployment, compared

with the competitive market outcome. Raising minimum wages would be expected to further

lower employment (and raise unemployment).

43. The PC presents the monopsony model of the labour market in order to explain why the negative

relationship between minimum wages and employment is not well supported empirically,

including for youth and low wage workers. In the monopsony argument for the minimum wage

firms have market power in the labour market (not necessarily in the product market) over

21 PC 2015 Inquiry into the Workplace Relations Framework


workers and this enables those firms to push wages down. Employment is restricted as workers

are deterred from supplying labour. In this situation imposing a higher minimum wage could

increase employment22, as workers are attracted to the higher wages and the employment

outcome moves towards the higher wage competitive solution.

44. However the monopsony model also produces the result that if the minimum wage is increased

far enough, employment would be reduced.23 That appears to be the analytical grounds for the

widely put suggestion that ‘moderate’ wage increases will not reduce employment, as there

appears to be no empirical evidence to suggest how far the minimum wage can be raised in

practice without reducing employment. The functional relationship generally estimated between

the minimum wage increase and employment in the empirical work does not allow this to be

strictly tested. That is it cannot be discerned whether the relationship between the minimum

wage and employment for instance might be positive over small increase in the minimum wage

and negative over a bigger increase. The market model faces issues both in the extent to which

how much minimum wage increases affect wages as a cost to the firm and in turn the

relationship between wages and the profitability of the firm, and the extent to which an increase

in the minimum wage affects workers’ wages and in turn the extent to which wage rates are a

decision factor in how much labour individuals supply.

45. In our view this standard market analysis cannot adequately evaluate the effects on incomes and

spending of those who are paid the increased wages, and the impacts on profits, employment

and income throughout the economy. This is a reason why the expected negative impacts of the

minimum wage on employment are not found empirically, even for much greater percentage

increases in the real minimum wage than those awarded in Australia, and over time.

46. The PC also argues a labour supply side case that a higher minimum wage could also improve

worker productivity through improved motivation and effort, improving employment in low skilled

areas, although effects could be industry specific.24

47. The PC’s review of the empirical findings in which it finds little or no negative impact of wage

increase on employment is all the more convincing because it begins with a model in which the

inherent expectation is of a negative impact on employment from raising the minimum wage.

48. The PC views the impacts on and risks posed for employment and earnings from raising the

minimum wage as an empirical matter.25 The PC’s review of the literature on minimum wages

and its own empirical analysis finds little or no evidence of negative employment effects from

22 PC 2015 pp1037-8, Box C123 OECD 2015a, p.4524 PC 2015 p18725 PC 2015 p15


raising the minimum wage. It indicates that no prescription can be inferred as to the desired rates

of increase of the minimum wage from the empirical analyses.

49. The PC indicates there would be greater scope for increasing the minimum wage if the skills of

jobless people improved over a sustained period, or ‘there was an increased demand for people

in industries intensive in the use of minimum wage employees, such as retailing, aged care and

hospitality’.26 This in fact is the case currently in those industry sectors in Australia in which are

most dependent on minimum wage and award only. It also says that in ‘improved economic

circumstances, minimum wages could rise at a faster pace’ (PC p17). This also is consistent with

current circumstances in the Australian economy which is sustaining a reasonable performance

against widely held expectations (see the Chapter on The state of the Australian economy).

50. The PC 2015 highlights the range of findings, and the relatively few Australian studies of

minimum wages and employment. It is apparent from Table C2 (PC p1044) and C4 (pp1049-

1050) that the vast majority of findings are not statistically significant. While negative impacts

are reported for minimum wage increases in the seven studies before 2007, a positive effect is

found in the one study for 2007 and ‘no effect’ in the two studies at 2011.

51. PC 2015 recognises ‘the minimum wage is just one of the many economic variables that can

affect employment levels, and some of the others are more likely to have significant impacts (PC

p183), and that of particular significance are aggregate demand and macroeconomic stability,

and the education, skills and experience of the workforce. The effects of changes in minimum

wages can be contingent on circumstances specific to them.27

52. From the PC’s survey in Appendix C of eleven Australian studies of the average wage and

employment which use a range of regression methods, it confirms ‘that real output is the main

driver of employment over time’. Its ‘reading of the Australian empirical studies is that increases

in Australia’s minimum wages are likely to have caused some disemployment, but that the effects

have not been major relative to other influences. Further, while the studies provide an indication

of the likely direction of change, they provide neither definitive evidence nor clear guidance on

the magnitude of any employment effects that would result from future changes in Australia’s

minimum wages’.28

53. The PC conducted its own analysis of the impact of minimum wage increases between 2008 and

2013. It used RED (Research and Evaluation) data from the Department of Employment, which

covers all recipients of federal income support except Family Tax Benefits or childcare subsidies.

26 PC 2015 p1727 PC 2015 p18428 PC 2015 p194


It used a difference in differences approach for econometric estimation and a range of

robustness tests which are intended to determine whether the relationships hold up under

different assumptions.

54. The PC indicated the results of its study were inconclusive in parts, reflecting diverse positive and

negative associations between employment and the minimum wage which were specific to the

year. The results suggested that employment effects of minimum wage increases were felt more

by those not in employment, while workers could find their hours reduced. But robustness

concerns meant that the PC could draw only limited conclusions. The study did not apply to

workers aged 15 to 20 years old who it was argued had to be removed from the sample, which

already excluded those in households where no one received welfare payments. The PC

recognised the limited capacity to control for shifts due to the record rise in the terms of trade,

world economic downturn or a major stimulus package which affect the years between 2008 and

2013.29

Other Work

55. Wilkins and Wooden (2014) finds that the employment shares of the highest waged and highest

skill levels have increased at the expense of the employment shares at the low end of wages and

skills respectively (Wilkins and Wooden 2014 p.424). This is in contrast with both Europe and the

USA which have had relatively strong employment growth at the bottom of the skills distribution.

Relative to the top quintile of jobs, ‘employment growth has tended to be weak along the entire

skills distribution’, although it grew less than half a percentage point in the fourth highest level,

mainly driven by the increase in carers and aides (p424). Wooden and Wilkins find this can only

be explained by the differences in the regulation of wages of low-paid workers, where many more

Australian workers are dependent on the minimum wage than Europe, and the minimum wage is

higher than the US or ‘most’ European countries.30

56. However we find an alternative explanation in that relatively sluggish multifactor productivity

growth in Australia has not left a dividend to flow across the skill distribution. This is supported

by Coelli and Borland (2015) which finds that technological change in Australia as elsewhere has

placed pressure on earnings distribution.31 Moreover, overall poor wages growth in Australia

despite high labour productivity growth has been particularly adverse to workers at the bottom of

the wage and skill distribution. We would argue it is the slow rate of growth in the real minimum

wage relative to the average wage in Australia that has stalled the distribution of skills and wages

toward the bottom. The lack of connection found between minimum wage increases and

29 PC 2015 p19530 Wilkins and Wooden 2014 p42431 Coelli and Borland 2015


employment across the literature supports that it is not different regulation of wages in Australia

that has led to weakening at the bottom.


WHO RELIES ON MINIMUM WAGES IN AUSTRALIA?

57. There are 1.86 million Australian workers, 18.8% of the workforce, who are on the National

Minimum Wage or who are reliant on awards for their wages, according to the most recent data of

May 2014. Most of those workers are women (57.5%) and most of them are adults (84.5%).

These workers are all paid the lowest wage that they may legally be paid. They lack bargaining

power, and rely on increases granted as part of the Annual Wage Review to improve their living

standards.

Sources and definitions

58. This chapter refers widely to the ABS Employee Earnings and Hours (EEH) survey, which is

conducted every two years, with the last one conducted in May 2014. Results from this survey

were released in January 2015 and have been covered extensively in the ACTU submission to the

Annual Wage Review 2014-15.32 The ACTU also acquired unpublished data at finer ANZIC

industry subdivisions and ANZSCO levels of occupation for that submission. The salient points will

be summarised here, with some further discussion.

59. In the EEH survey, employees are classified according to the ‘main method’ of setting their pay,

‘award only’, ‘collective agreement’, ‘individual arrangement’, or ‘owner-managers of incorporated

enterprises ‘(OMIEs). They are ‘award only’ if they are “paid exactly at the rate specified in the

award, and are not paid more than that rate of pay.”33 Workers paid above an award are

classified to either the ‘collective agreement’ or ‘individual arrangement’ categories.

60. The ACTU understands that workers who are paid the National Minimum Wage (NMW) are

classified as ‘award only’ in the EEH survey. ‘Awards’ are defined for the purposes of ABS surveys

as “legally enforceable determinations made by Federal or State industrial tribunals or authorities

that set the terms of employment (pay and/or conditions) usually in a particular industry or

occupation.”34 This includes Modern Awards and the National Minimum Wage Order. The EEH

survey appears to classify both groups as ‘award only’.

61. In this submission, the ACTU uses the phrase ‘award-reliant workers’ to refer to employees who

are classified as ‘award only’ in the EEH survey. ‘Award-reliant’, ‘award only’, ‘minimum wage

workers’, and ‘workers reliant on minimum wages’ are used interchangeably in this submission to

mean workers paid exactly at an award rate or the NMW. ‘Low paid workers’ is also intended to

have the same meaning, except where it is clear that ‘low paid’ refers to workers with earnings

below a particular threshold, regardless of their pay-setting method.

32 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, pp11-29.33 ABS 2015,Employee Earnings and Hours, Australia, May 2014, Catalogue number 6306.34 ABS 2013, Labour Statistics: Concepts, Sources and Methods, 2013, Catalogue number 6102.0.55.001.


62. The Fair Work Commission’s Australian Workplace Relations Study (AWRS) provides a wealth of

relevant and important information about low-paid workers and their employers. The AWRS

findings sheds light on the population of workers who are paid above the relevant award rate, but

whose pay is nevertheless set by some reference to the award rate.35 The ABS data provides little

insight on this group, as they’re subsumed within the ‘individual arrangements’ category.

63. In relation to award reliance, the ABS figures regarding award only workers are used rather than

the AWRS figures. This is because the AWRS First Findings report makes it clear that the AWRS

“should not be a substitute for ABS catalogues that provide more robust estimates of the

employer and employee populations in Australia primarily due to the significantly larger sample

sizes and higher response rates that ABS estimates are based on.”36 The AWRS findings are a

useful supplement to, rather than a replacement for, the ABS estimates.

How many people rely on minimum wages in Australia?64. There were 1 860 700 employees paid exactly at an award rate in May 2014, representing

18.8% of all employees37. There were 41.1% of employees paid according to a collective

agreement and 36.6% paid according to an individual arrangement, with the remainder (3.4%)

being owner-managers of incorporated enterprises (OMIEs).

65. For comparison, the AWRS First Findings report for 2014 data, based on employer reported data,

estimates that 14.8% of employees were award reliant plus another 15.8% which were paid

according to an ‘unknown award-based arrangement’. These unknown award based

arrangements include an unknown proportion which are paid at the award, and others where ‘the

award is used as a guide / base for pay setting’. The AWRS also asked employees how they

believed their pay was set, and 22.4% reported having their pay set by an award.38

66. The proportion of employees paid according to an award appears to have risen somewhat in

recent years after falling during the previous decade, based on the EEH data. In 2000, around

23.2% of employees were award-reliant, falling throughout the 2000s to a low of 15.2% in 2010.

Award reliance rose to 16.1% of employees in May 2012 and 18.8% in May 2014, an increase of

2.7 percentage points over the two year period.

67. The rise in award reliance over 2012 to 2014 came with a 0.9 percentage point fall in the

proportion of employees on a collective agreement and a 1.8 percentage point fall in the

proportion of employees paid according to an individual arrangement.

35 FWC AWRS 2015 First Findings Report 27 January36 Pay Equity Unit 2015, First Findings Report: Consolidated content from online publication, Fair Work Commission, Melbourne, p.9.37 ABS EEH Cat 630638 FWC First Findings Report Incidence of different methods of setting pay, Methods of setting pay, based on enterprises reporting using aparticular wage setting practice for at least one employee. https://www.fwc.gov.au/first-findings-report/5-wage-setting-outcomes/incidence-different-methods-setting-pay accessed 16 March 2016.

https://www.fwc.gov.au/first-findings-report/5-wage-setting-outcomes/incidence-different-methods-setting-pay

https://www.fwc.gov.au/first-findings-report/5-wage-setting-outcomes/incidence-different-methods-setting-pay


68. Some important considerations regarding the increase in award reliance are examined in the

chapter on Relative living standards and the needs of the low paid.

Overview of the minimum wage workforce

69. Figure 1 shows the award only workforce by age and full-time/part-time status as at the most

recent ABS data breakdown, May 2014.

Source: ABS 6306

70. The average age of award-reliant workers is 35.7, a little younger than the average of 39.5 for all

workers. Most award only workers are adults, with 84.5% of them aged 21 or above – the

equivalent figure for all employees is 92.3%. Award only employees are over represented in the

age group under 25, after which the position is reversed until 65 years and over when they are

equal. The ‘under representation’ of award only in the 35 to 54 in particular is not only due to

people rising into over award positions. It is also due to women with children being removed from

employment, where women are disproportionately reliant on award only.

Figure 1: Employees by method of setting pay


Figure 2: Award only employees by occupational group – May 2014

Source: ABS 6306 and ACTU calculations.

71. Compared to other workers, award only workers are:

a) more likely to be female - 57.5% of award only workers are female, compared to 48.9%of other workers;

b) more likely to work part-time (59.2% vs 35.5%);c) more likely to be casual rather than permanent or fixed term (44.6% vs 16.2%);d) more likely to work in a small business (37.9% vs 19.7%), although a majority of award

only workers are employed in businesses with more than 20 employees;39

e) more likely to work in the private sector (90.5% vs 79%); and aref) more likely to have weekly cash earnings below $1000 (78.4% vs 42.2%).

Industry

72. Nearly two-thirds of all award only workers (61.6%) were employed in four key industries at May

2014: Retail trade ( employed 17.2% of award only workers), Accommodation and food services

(17%), Health care and social assistance (15.1%) and Administrative and support services (12.2%).

73. Seven out of eighteen industry divisions have more than 20% of employees who are award reliant.

The industry with the highest level of award reliance at May 2014 is Accommodation and food

services, in which 42.8% of employees are award only. This proportion is called the ‘density’ of award

only employees. There are six other industries in which the density of award only employees

exceeded 20%. These are Retail trade, Rental hiring and real estate, Administrative and support

services, Health care and social assistance, Arts and recreation, and Other services. This is shown in

Table 2.

39 The ‘all other workers’ figure for business size excludes owner-managers of incorporated enterprises.

0%

5%

10%

15%

20%

25%

30%

17 yearsand under

18 to 20years

21 to 24years

25 to 34years

35 to 44years

45 to 54years

55 to 64years

65 yearsand over

Share of total

Award only employees

All employees


Table 2: Award only employees by industry – May 2014

IndustryAward onlyemployees

Totalemployees

Density ofaward onlyemployeesin industry

Industry'sshare of allaward onlyemployees

Industry'sshare of

totalemployment

(Thousands) (Thousands) (Per cent) (Per cent) (Per cent)Mining 1.3 169.1 0.8% 0.1% 1.7%Manufacturing 109.9 698.6 15.7% 5.9% 7.1%Electricity, gas, water and waste services 7.9 114.1 6.9% 0.4% 1.2%Construction 93.8 685.7 13.7% 5.0% 6.9%Wholesale trade 53.2 445.5 11.9% 2.9% 4.5%Retail trade 320.3 1,122.3 28.5% 17.2% 11.3%Accommodation and food services 316.9 739.7 42.8% 17.0% 7.5%Transport, postal and warehousing 48.0 438.6 10.9% 2.6% 4.4%Information media and telecommunications 8.3 161.0 5.2% 0.4% 1.6%Finance and insurance services 20.1 400.9 5.0% 1.1% 4.0%Rental, hiring and real estate services 39.2 177.7 22.1% 2.1% 1.8%Professional, scientific and technical services 76.9 777.3 9.9% 4.1% 7.9%Administrative and support services 227.9 611.8 37.3% 12.2% 6.2%Public administration and safety 79.7 622.3 12.8% 4.3% 6.3%Education and training 47.6 938.0 5.1% 2.6% 9.5%Health care and social assistance 281.4 1,262.4 22.3% 15.1% 12.8%Arts and recreation services 37.6 170.8 22.0% 2.0% 1.7%Other services 91.0 363.1 25.1% 4.9% 3.7%All Industries 1,860.7 9,898.9 18.8% 100.0% 100.0%


74. Seventy-one per cent of award reliant employees, 1.3 million, are concentrated in industries with

award only densities of over 20%. These industries employ 45% of total employees.

75. Within the four industries that employ the largest proportions of award only employees, there is

substantial variation in the extent of award reliance. For example, within the Health Care and Social

Assistance industry, 50.9% of employees in the ‘Social assistance services’ subdivision are award

only, but only 4.7% of employees in ‘Residential care services’ are award only. Within Administrative

and support services, ‘building cleaning, pest control and other support services’ has a particularly

high award reliance at 60.2%, or 95 000 employees.40

40 ABS 6306, unpublished data. Density and proportion are ACTU calculations.


Occupation

76. Table 3 shows the number and proportion of award only employees by broad occupational group.

Around a third of community and personal service workers and labourers are award only, with a

slightly smaller proportion of sales workers (29.7%) reliant on awards.

Table 3: Award only employees by broad occupational group – May 2014

OccupationAward onlyemployees

Totalemployees

Density ofaward only

employees inoccupation

Occupation'sshare of allaward onlyemployees

Occupation'sshare of totalemployment

(Thousands) (Thousands) (Per cent) (Per cent) (Per cent)Managers 64.8 915.1 7.1% 3.5% 9.2%Professionals 143.4 2,073.6 6.9% 7.7% 20.9%Technicians and trades workers 256.5 1,176.0 21.8% 13.8% 11.9%Community and personal service workers 394.2 1,151.9 34.2% 21.2% 11.6%Clerical and administrative workers 208.0 1,689.0 12.3% 11.2% 17.1%Sales workers 384.7 1,295.7 29.7% 20.7% 13.1%Machinery operators and drivers 101.9 620.0 16.4% 5.5% 6.3%Labourers 307.3 977.6 31.4% 16.5% 9.9%All occupations 1,860.7 9,898.9 18.8% 100.0% 100.0%


77. Just over one million employees or 58% of all award reliant are in three occupations, Community

and personal service workers (394 200), Sales workers (384 700) and Labourers (307 300).

These are the occupations of 35% of total employees.

78. In order to ascertain more information about the types of jobs award reliant employees are in, for

its submission to the AWR 2014-15 the ACTU acquired unpublished data from the EEH survey

showing the number of award only workers by two-digit ANZSCO code, a much finer grained

definition of occupation.

79. Hospitality workers and cleaners and laundry workers have the highest density of award-reliant

employees, with over half of the employees in each of those occupations being paid by an award

only.


Figure 3: Density of award only employees in most award-reliant occupations

Source ABS 6306 (unpublished data) and ACTU calculations.

80. Sales assistants and salespersons are only the ninth most award-reliant occupation, with 30.8% of

employees in the occupation being paid by award only. However, the occupation is very large, with

896 600 total employees. As a result, it employs more award-reliant employees (275 800) than any

other occupation, by some margin. The other occupations which have largest numbers of award

reliant employees in order are Hospitality (182 200) which has the highest proportion of award

reliance, Cleaners and laundry workers (128 700), second highest award reliance, Carers and aides

(107 700), fourteenth most award reliant, and Sales support workers (97 000), fourth most award

reliant.41

81. Table 4 shows the number and density of award-reliant employees for each 2-digit ANZSCO

occupation in May 2014, as presented in the ACTU submission of the previous year.

41 ABS 6306 unpublished data, cited in ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March,pp.17-18.

59.7%55.2%

49.0%41.9%

38.8%34.3%

31.1%30.9%30.8%

30.0%28.2%27.8%

26.2%23.7%

21.9%21.6%

19.1%19.0%18.6%18.0%

0% 20% 40% 60%

Hospitality workersCleaners and laundry workers

Food trades workersSales support workers

Skilled animal and horticultural…Other technicians and trades workers

Food preparation assistantsSports and personal service workers

Sales assistants and salespersonsConstruction trades workers

Farm, forestry and garden workersProtective service workers

Other labourersCarers and aides

Health and welfare support workersFactory process workers

Road and rail driversMobile plant operators

StorepersonsClerical and office support workers

Density of award-reliant workers


Table 4: Award only employees by occupation (2-digit ANZSCO), May 2014 (most recent)

Award-reliantemployees Total employees

Density ofaward-reliant

workers

Occupation'sshare of all

award-reliantworkers

thousands thousands per cent per centManagers 64.8 915.1 7.1% 3.5%

Chief executives, general managers and legislators 0.9 * 137.2 0.7% 0.0%Farmers and farm managers - 1.5 * - -Specialist managers 27.0 531.8 5.1% 1.5%Hospitality, retail and service managers 36.9 244.6 15.1% 2.0%

Professionals 143.4 2073.6 6.9% 7.7%Arts and media professionals 1.9 * 38.7 4.9% 0.1%Business, human resource and marketing professionals 19.3 497.8 3.9% 1.0%Design, engineering, science and transport professionals 12.0 267.4 4.5% 0.6%Education professionals 21.4 494.1 4.3% 1.2%Health professionals 66.8 433.0 15.4% 3.6%ICT professionals 4.7 ** 190.1 2.5% 0.3%Legal, social and welfare professionals 17.2 * 152.5 11.3% 0.9%

Technicians and Trades Workers 256.5 1176.0 21.8% 13.8%Engineering, ICT and science technicians 19.9 * 242.6 8.2% 1.1%Automotive and engineering trades workers 32.8 267.4 12.3% 1.8%Construction trades workers 54.0 180.2 30.0% 2.9%Electrotechnology and telecommunications trades workers 25.5 * 181.2 14.1% 1.4%Food trades workers 53.7 109.6 49.0% 2.9%Skilled animal and horticultural workers 32.6 * 84.0 38.8% 1.8%Other technicians and trades workers 38.0 110.8 34.3% 2.0%

Community and Personal Service Workers 394.2 1151.9 34.2% 21.2%Health and welfare support workers 30.4 138.7 21.9% 1.6%Carers and aides 107.7 454.8 23.7% 5.8%Hospitality workers 182.2 305.3 59.7% 9.8%Protective service workers 38.1 137.1 27.8% 2.0%Sports and personal service workers 35.9 116 30.9% 1.9%

Clerical and Administrative Workers 208.0 1689.0 12.3% 11.2%Office managers and program administrators 23.1 290.8 7.9% 1.2%Personal assistants and secretaries 11.2 108.8 10.3% 0.6%General clerical workers 68.0 428.3 15.9% 3.7%Inquiry clerks and receptionists 48.5 287.8 16.9% 2.6%Numerical clerks 23.2 256.4 9.0% 1.2%Clerical and office support workers 14.0 * 77.7 18.0% 0.8%Other clerical and administrative workers 20.1 239.2 8.4% 1.1%

Sales Workers 384.7 1295.7 29.7% 20.7%Sales representatives and agents 11.9 167.7 7.1% 0.6%Sales assistants and salespersons 275.8 896.6 30.8% 14.8%Sales support workers 97.0 * 231.4 41.9% 5.2%

Machinery Operators And Drivers 101.9 620.0 16.4% 5.5%Machine and stationary plant operators 16.8 171.7 9.8% 0.9%Mobile plant operators 19.3 * 101.8 19.0% 1.0%Road and rail drivers 43.4 226.7 19.1% 2.3%Storepersons 22.3 119.9 18.6% 1.2%

Labourers 307.3 977.6 31.4% 16.5%Cleaners and laundry workers 128.7 233.1 55.2% 6.9%Construction and mining labourers 16.8 125.5 13.4% 0.9%Factory process workers 41.9 194.1 21.6% 2.3%Farm, forestry and garden workers 11.7 * 41.5 28.2% 0.6%Food preparation assistants 48.4 155.5 31.1% 2.6%Other labourers 59.6 227.9 26.2% 3.2%

All occupations 1860.7 9898.9 18.8% 100.0%Source: ABS 6306, including unpublished data. The final two columns are ACTU calculations. * indicates a relative standarderror between 25% and 50%; ** indicates a relative standard error greater than 50%.


Employer size

82. Small businesses, those with fewer than 20 employees, employ 705 900 award only workers.

This is 37.9% of the workers reliant on awards.

83. Although award only employees are more likely than other employees to be employed in small

businesses, a substantial proportion of them are employed in larger businesses. Nearly half

(42.4%) of award-reliant workers are employed in businesses with 50 or more employees.

Classification and earnings

84. In previous reviews we made use of unpublished ABS EEH data on the distribution of award only

workers by hourly earnings to estimate the number of employees at each award classification

level, most recently using unpublished data from the May 2014 EEH survey released in January

2015. We note that since then both the numbers of employees in all categories as well as the

rates of pay may have changed. Hence inference since that survey is not possible.

85. We estimated that 43% of award only employees had hourly earnings at or below the C10 rate of

pay in May 2014 in the previous ACTU submission. In our analysis, we deflated casual

employees’ hourly earnings by a fifth to remove an assumed casual loading of 25%, consistent

with our practice in previous years.

86. Our estimates of the number and proportion of award only workers in each award classification

range as at May 2014 are shown in Table 5.

Table 5: Estimate of the number of award only employees by classification (May 2014)Number of employees in range

(thousands)

Percentage ofemployees in

range

Classification levelAward onlyperm/fixed

term

Awardonly

casual

Totalawardonly

Total awardonly

Below NMW/C14 107.5 159.7 267.2 14.4%At or above NMW/C14, below

C9182.8 350.0 532.8 28.6%

At or above C9, below C5 183.8 173.7 357.5 19.2%At or above C5, incl. C2(b) 226.0 88.7 314.7 16.9%

Over C2(b) 330.6 57.5 388.2 20.9%Source: ACTU calculations based on ABS 6306 (unpublished). The figures include juniors, apprentices, trainees, and peoplewith disability. The classification levels are based on adult minimum wages. The earnings of casual have been deflated by afifth to remove an assumed 25% casual loading. The ‘At or above C5, incl. C2(b)’ earnings range includes workers withhourly earnings up to $1 above the C2(b) range. ‘Over C2(b)’ is all those with hourly earnings more than a dollar higher thanC2(b).


87. Our estimate of the proportion of award only employees whose earnings are at or below C10 at

May 2014 was a little lower than previous estimates. Our estimate for 2012 was 48.5%, and for

2010 it was 45%. However, given the imprecision of these estimates, we do not believe these

differences should be given too much weight. Previous estimates of the proportion of award-

reliant workers employed at or below the C10 rate, by the ACTU and others, have ranged widely. 42

88. Award only workers employed in small business have lower average hourly earnings. The average

earnings of award-reliant workers rises with the size of the firm, from $22.10 per hour on average

in firms with under 20 employees to $36.70 an hour on average in firm with over 1000

employees.

89. Figure 4 shows the distribution of award-only employees by earnings. The chart shows the

percentage of award-only employees who are employed in 50c earnings ranges. The black line is

a smoothed version of the earnings distribution.

Figure 4: Distribution of earnings of award-only employees (May 2014)

Source: ACTU analysis of ABS 6306 (unpublished). Casuals’ earnings deflated by a fifth.

42 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March,pp.22

NMW C10 C2(b)

0

1

2

3

4

5

6

7

$0 $5 $10 $15 $20 $25 $30 $35 $40

Per cent

Hourly earnings


90. Figure 5 compares the (smoothed) earnings distribution in May 2012 with that in May 2014. The

figures have not been adjusted for inflation.

Figure 5: Distribution of earnings of award-only employees (May 2014 and May 2012)

Source: ACTU analysis of ABS 6306 (unpublished). Casuals’ earnings deflated by a fifth. Smoothed.

91. Compared to countries with a single national minimum wage, Australia has a less pronounced

‘spike’ in hourly earnings above the minimum. Nearly 5% of UK workers earn within 25p per hour

of the UK NMW, whereas less than one percent earn within one dollar of the minimum wage in

Australia. The effect of Australian minimum wages on the earnings distribution is much more

diffuse. In the ACTU’s view, this is a positive feature, not a drawback, of our system.

Why has award reliance risen?

92. The reliance on the awards rose from 16.1% in the 2012 EEH survey to 18.1% of employees in

the 2014 survey. The Panel is required to take into account “the need to encourage collective

bargaining.”43 The Panel has said ‘we are not persuaded that the recent increase in award

reliance is sufficient to support the contention that recent minimum wage increases have acted

as a disincentive to collective bargaining.’44

93. Some parties in previous Reviews have suggested that awarding increases in minimum wages

above inflation, or awarding percentage increases in award minimum wages, discourages

43 Fair Work Act 2009 (C’th), s.134(1)(b)44 FWC 2015 Annual Wage Review 2014-15 [56]

0

1

2

3

4

5

6

$0 $5 $10 $15 $20 $25 $30 $35 $40

Per cent

Hourly earnings

2012 2014


collective bargaining.45 We do not accept that that increases in the NMW above inflation, or

percentage increases in NMW discourage collective bargaining. In Australia collective bargaining

is likely to be a consequence of awarding pay increases. The awards can be taken as a signal that

collective bargaining is warranted, by employees and employers. There is no straightforward

effect on incentives related to the size of the increase awarded. Employees may take a larger

increase as a signal that collective bargaining may be more worthwhile. A larger increase may

encourage employers to bargain about the complex of conditions in the employment relationship.

The reverse may be true about a smaller increase, although no symmetry can be assumed in

relation to the incentives engendered by the size of increase.

94. There is no historical relationship evident between the level of award reliance following the

previous increase awarded.

95. The measure of award reliance over time is subject to statistical uncertainty.

96. Award reliance is a consequence also of changing industry structure with new and changing

areas of demand for industry output of goods and services. In any case there is a likely to be lag

in fast growing areas between initial award reliance and the undertaking of collective bargaining.

This is especially the case in new industries related to the digital economy and the increase in at

home and casual employment at unsocial hours.

97. 41.1% of employees were paid according to a collective agreement in 2014, the most recent

data, a figure higher than any recorded prior to 2010. A similar proportion (40.1%) are paid

according to an individual arrangement. Collective bargaining remains more prevalent than it was

prior to the commencement of the Fair Work Act.

98. It may be that employers have a diminished incentive to bargain given that minimum rates have

fallen so far relative to average or median wages.

99. Award reliance has risen disproportionately between 2012 and 2014 in the public sector, where

most employees are not covered by the Fair Work Act.

100. The increase in award reliance was far from uniform across industries, including across the

more award reliant industries.

101. Comparing the 2014 and 2012 EEH data shows the following three trends. The density of

award-reliant employees in the private sector rose from 18.4% to 21%. The density of award-

45 For example, see Australian Government submission to the 2013-14 Annual Wage Review, p.18 at para 64.


reliant employees in the public sector rose from 6.7% to 9.5%. The private sector’s share of total

employment rose from 80.4% to 81.2%.

102. The ACTU’s submission to the previous AWR decomposed the increase in award reliance to

obtain the relative contributions of those three factors.46 It found that the rise in award reliance

in the private sector contributed 2.1 percentage points to the overall rise in the density of award

reliant workers. The rise in award reliance in the public sector contributed 0.6 points, and the fall

in the public sector’s share of total employment contributed 0.1 points.47

103. This leaves 2.1 percentage points of the 2.7 point total that are due to a rise in award reliance

in the private sector.48

104. If the Panel’s previous decisions had increased award reliance, we submit that the more award-

reliant industries would be the most affected. They were not. Accommodation and Food Services

is by far the most award-reliant industry, with 44.8% of its employees award reliant in 2012, but

this industry experienced a two percentage point fall in award reliance between 2012 and 2014.

The industry recorded a large increase in the proportion of employees covered by a collective

agreement, which rose from 23.8% to 32%. This is not consistent with the hypothesis that the

Panel’s decisions have undermined the incentive to bargain collectively.

105. The change in award reliance by industry between May 2012 and May 2014 is shown in Figure

6, with the more award-reliant industries shown in blue. It can be seen that the change in award

reliance among the more award-reliant industries is far from uniform.

46 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March,pp.26.47 Components do not sum to 2.7% due to rounding.48 These figures are rounded, which is why the 0.7% and 2.1% don’t sum to 2.7%.


Figure 6: Change in level of award reliance between May 2012 and May 2014 by industry

Source: ABS 6306 and ACTU calculations. Industries in which more than 20% of employees were award only in 2012 areshaded blue.

106. There is no statistically significant relationship found between an industry’s level of award

reliance in May 2012 and the change in the level of award reliance between May 2012 and May

2014. The level of award reliance in May 2012 is not found to affect the change in award

reliance between May 2012 and May 2014 as set out in the ACTU submission to last year’s

AWR.49

107. The absence of a relationship between the level of award reliance in 2012 and the change in

award reliance between 2012 and 2014 supports that the Panel’s decisions have not increased

award reliance. The more award-reliant industries have not experienced the largest increases in

award reliance.

49 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, pp.29.

-2% 0% 2% 4% 6% 8%

Accommodation and food servicesEducation and trainingInformation media and…

MiningFinance and insurance services

Other servicesRental, hiring and real estate services

Arts and recreation servicesElectricity, gas, water and waste…

Retail tradeConstruction

Health care and social assistanceTransport, postal and warehousing

Wholesale tradeProfessional, scientific and technical…

ManufacturingPublic administration and safety

Administrative and support services

Percentage points


THE STATE OF THE AUSTRALIAN ECONOMY

108. The Australian economy has proved more resilient than expected following the dissipation of

the resources boom.

a) The Australian economy grew by 3.0% over the year 2015, faster than most of the high

income OECD countries;

b) Output grew in each of the four most award-reliant industries in 2015, three of them at a

higher growth rate than the average for the economy;

c) There is no common trend to the average growth rates across the more award-reliant

industries;

d) Consumer spending grew faster than households’ incomes in 2015, which should assist

those industries that rely it;

e) The volume of retail sales grew 2.5% in real terms in 2015, with department store

retailing growing at 4.6%;

f) The gap between labour productivity growth and wages continues to widen;

g) Labour productivity in two very labour intensive most award-reliant industries grew at

0.9%, almost the same rate as productivity in the total economy at 1.0%;

h) Australian workers are among the most productive in the world, and our labour

productivity continues to grow faster than that of many comparable countries, at 1.7%

compared with 0.9% average for the OECD over the five years to 2014;

i) Real unit labour costs remain below those of December 2007, eight years ago, as real

wages50 have not kept pace with labour productivity growth;

j) The share of wages in income has not risen: it remains at 54.0% over the year to

September 2015 because of falls in profit income due to lower asset prices, rather than

because of wage increases;

k) The share of wages in income is known to have fallen and the profit share risen in at

least three of the more award reliant industries which are labour intensive;

l) Business bankruptcy rate is the lowest since the GFC and since the series began 12

years ago; and

m) Two of the more award-reliant industries, Health Care, and Accommodation and Food,

recorded the fastest growth in the number of businesses in 2014-15.

109. Low-paid workers deserve to share in the benefits of productivity growth and a growing

economy. An increase of $30/3.9% is appropriate and reasonable in the economic

circumstances. Whatever eventuates, low paid workers deserve this raise now and if it is granted

50 ‘Real wages’ here means hourly labour compensation deflated using output prices.


it will not have adverse consequences, rather it is likely to contribute to improvement in the

economy.

Economic growth

110. The Australian economy grew by 3.0 in real terms over the year 2015, up from 2.2% for 2014,

seasonally adjusted. The RBA expects growth of 2.5% to 3.5% over the years 2016 and 2017.

Figure 7: Real GDP growth (year ended), 2006 to 2015

Source: ABS 5206

International comparison of economic growth

111. Australia’s economic growth of 3.0% in the year to December 2015 was greater than the OECD

average and median real GDP growth rates, both at 2.1%. The gap between Australia’s GDP

growth and the OECD average has narrowed over 2015 as the OECD country average moved up

by nearly half a percentage point from 2014 with continuing overall recovery from the GFC.

Australia’s GDP growth outpaced all the high income OECD countries except Sweden, and Ireland

and Spain which were recovering after suffering the most in the GFC.

0.0

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GDP growth, annual, trend, % GDP growth, annual, seasonally adjusted, %

GDP growth, annual, original, %


112. Australia’s quarterly GDP growth of 0.9% outpaced the OECD Major 7, average 0.4% for the

December quarter.51

113. While Australia's GDP growth has been below trend in recent times, this is to be expected in the

context of the economy adjusting to the reduction in the terms of trade following the end of the

construction phase of the resources boom and the global reduction in commodity prices. The

absence of any downturn and the continuation of moderate growth is consistent with the views of

the RBA in its Statement on Monetary Policy of February 2016.52

Figure 8: Real annual GDP growth rates across OECD countries, 2015, per cent

Source: OECD Stat (quarterly national accounts). Chart shows growth in seasonally adjusted real GDP (expenditureapproach) over the year to 2015. * denotes countries for which the chart shows growth over the year to the third quarter of2014, as Q4 data was not yet available in OECD Stat.

Growth by industry

114. Real economic output (gross value added) grew in the four most award-reliant industries in

2015. Growth was particularly strong three award reliant sectors, Health care and social

assistance, Accommodation and food services and Retail trade. The growth in gross value added,

seasonally adjusted, in each industry over the year to September 2015 is shown in Figure 9.

51 FWC Statistical Report – AWR 2015-2016, p.152 RBA 2016 Statement on Monetary Policy February, pp.60-61

-1.9-0.2

0.30.40.50.60.60.7

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JapanDenmark*

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IsraelUnited Kingdom*

Chile*New Zealand*United States

MexicoAustralia*

HungarySpain

PolandSweden*

Slovak RepublicCzech Republic*

Turkey*Luxembourg*

Ireland*

http://stats.oecd.org/Index.aspx?DataSetCode=QNA


Figure 9: Growth in industry gross value added over the year to September 2015, seasonally adjusted,per cent

Source: ABS 520606 (seasonally adjusted) and ACTU calculations.

115. Only three industries experienced a fall in real output in the year to September 2015. This is

fewer industries with a fall in output than the average over the last ten years, and all three falls

are of less than one per cent. This is another reason that the economy overall has continued to

grow quite well.

116. There is no evidence that the growth rates of output across industries over time are related to

the proportion of workers in the industry who are award reliant, or to the rate of increase in

awards, as commented on in previous ACTU submissions (most recently ACTU submission to AWR

2015, [233]-[235]). That is, it cannot be seen that the more award reliant industries grow more

slowly, or grow more slowly in years when higher rates are awarded.

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Professional, scientific and technical servicesOther services

Administrative and support servicesElectricity, gas, water and waste services

Arts and recreation servicesConstruction

Wholesale tradeTransport, postal and warehousing

Education and trainingAccommodation and food services

Retail tradeMining

Health care and social assistancePublic administration and safetyFinancial and insurance services

Rental, hiring and real estate servicesInformation media and telecommunications

Annual GVA growth, %


117. For instance, the four most award reliant industries have all grown at rates similar to or faster

than the whole economy over the last twenty-five years. Accommodation and Food services, and

Admin and Support Services have grown at rates similar to the whole economy. Retail Trade

declined slightly as a share of total economic output since 2002 some probably due to the

increase in internet buying, and then has flattened out somewhat since 2011. Health Care and

Social Assistance has increased its share of the economy by 40% over the last 25 years,

particularly with the rise in aged and other care. If award reliance held up industry growth, then

the shares of the more award reliant industries in the economy should grow more slowly, but this

is not observed.

Consumer spending and retail trade

118. Many of the more award-reliant sectors of the economy, such as hospitality and retail, tend to

rely on consumer spending to a greater degree than other industries. Consumer spending grew a

little faster than the overall economy in 2015. Households’ final consumption expenditure rose by

2.7% in real terms in the year to September 2015 compared with 2.5% growth in GDP. This

helped contribute to the strong growth in industry value added experienced in the Retail Trade

and Accommodation and Food Services industries, discussed earlier and shown in Figure 9.

119. Households’ spending grew by 2.7% in real terms in the year to September 2015, around its

typical pace for the post-GFC era. Consumption grew faster than households’ real incomes, which

rose by 0.3%.53 This is shown in Figure 10. Because consumption outpaced income growth

slightly, the household savings ratio fell slightly from 7.3% in September 2014 to 7.1% in

September 2015, as shown in Figure 1154. The savings ratio reached a post-GFC peak and has

fallen steadily since then. The elevated household saving ratio is a factor that some employer

groups have identified as a factor causing difficulty in industries that depend on consumer

spending. To the extent that was true, it is causing less difficulty now than a year earlier, with

consumers saving a smaller portion of their income. However because people spend more out of

income when income is lower, this is more likely to be a return to trend levels after the plunge in

the savings ratio after the GFC. Also households at the lower end of the income distribution spend

a larger proportion out of income, and this may be a net consequence as income distribution

widens over time.

53 The income measure referred to is household net disposable income, which is household gross disposable income less householdconsumption of fixed capital. This measure is used as this is what the ABS uses to calculate the household saving ratio. See ABS 2014, AustralianSystem of National Accounts, Concepts Sources and Methods, Catalogue number 5216, p.669.54 ABS 5206 and ACTU calculations


Figure 10: Annual growth in household income and final consumption

Source: ABS 5206 and ACTU calculations. Household net disposable income is calculated as household gross disposableincome less household consumption of fixed capital.

Figure 11: Household saving ratio

Source: ABS 5206 and ACTU calculations. The household saving ratio is the ratio of household net saving to household netdisposable income. Household net saving is calculated as household net disposable income less household finalconsumption expenditure. Household net disposable income is calculated as household gross disposable income lesshousehold consumption of fixed capital.

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120. Consistent with the solid growth in consumption, the volume of retail sales rose by 3.1% over

the year 2015, reflecting similar strong growth over the last two years. This compares with an

average growth of 2.9% in retail spending in real terms over the same period including the GFC,

and an average of 2.8% per annum growth in consumption in real terms over the 10 years from

December 2005. This continues healthy growth in spending in the Australian economy.

Figure 12: Growth in the volume of retail sales and consumer spending, year on year

Source: ACTU calculations based on ABS 5206, 8501.

121. The retail sector grew at an average of 2.5% in real terms over the year 2015, just below the

average of 2.7% over the last five years. There is a great deal of variation in the pace of turnover

growth among different sub-sectors and from year to year. All sectors grew over the year 2015. 55

Household goods grew the most at 4.8%, clothing and footwear grew at 4.5% and department

stores at 4.6%. All the award reliant areas experienced positive retail sales growth over the year

to December 2015, including restaurant and takeaway food at 1.2%, the same as food retailing.

While three experienced a slight downturn in the last quarter of 2015, this was made up for by

the continuing upturn in department store retailing.

55 ‘Other retailing’ includes newspaper and book retailing; sports, camping equipment, entertainment media, and toy and game retailing;pharmaceutical, cosmetic and toiletry goods retailing; stationery goods retailing; antique and used goods retailing; and flower retailing.

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Growth in household consumption, seasonally adjusted, real, year on year, %

Growth in retail turnover, seasonally adjusted, real, year on year %


Figure 13: Retail turnover by industry sub-sector, real (Index: December 2005=100)

Source: ABS 8501, chain index, seasonally adjusted, and ACTU calculations.

Productivity growth

122. In its 2014-15 decision, the Panel indicated that “productivity and related measures require

consideration in minimum wage fixation”.56 Labour productivity is not simply determined by the

level of wages or the minimum wage. Rather, labour productivity is an outcome of the particular

combination of inputs and technology which produces the range of outputs of goods and

services, and the set of institutions that brings them together. Wages are determined through a

set of processes emanating from within those institutions.

123. When labour productivity increases above the rate of increase of wages, it is an indication that

wages are not reflecting the contribution of labour to output.

124. Considering the annual increases for the year to June 2015 alone, we can compare measures

of wages growth with those of labour productivity growth. In terms of wages, Average Weekly

Ordinary Time Earnings in real terms (deflated by cpi) rose 0.7% over the year to May 2015, and

real unit non farm labour costs rose 0.6% to June 2015. The measures of productivity all

increased as fast or faster over the year to June 2015. Real GDP per capita rose 0.8%, real GDP

per hour rose 1.0% and GDP per hour in the market sector rose 1.3%.

56 FWC 2015 AWR 2014-15 [182]

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Food Households goods

Clothing and footwear Department stores

Other retailing Restaurant and takeaway food


125. For productivity growth the longer term is more significant because of the length of time

processes affecting labour productivity take. Figure 14 shows the sustained difference over the

last twenty years between three measures of labour productivity and real average weekly ordinary

time earnings. Even if there is some dependence on the starting year for the index, it shows that

the increase in labour productivity has been greater than the increase in average wages over the

last twenty years. The basically flat wages since June 2013 contrast with the increases in labour

productivity since then.

Figure 14: Real average weekly ordinary time earnings, and various measures of labour productivity(June 1995 - June 2016, annual index)

Source: ABS Cats 5204, 6302, 6401 and ACTU calculations. The market sector excludes services where output is not wellmeasured.

126. Another measure of labour productivity is that derived by the ABS in its measures of multifactor

productivity. The ABS makes use of standard economic assumptions about the relationship

between aggregate inputs and outputs in order to arrive at these estimates (ABS Cat 3204013).

The increase in labour productivity is not matched by multifactor productivity (from sources other

than capital or labour inputs) which is flat, or capital productivity which is declining. Figure 15

shows measures of labour, capital and multifactor productivity based on the ABS annual

estimates.

9095

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GDP per hour worked market sector, real AWOTE real


Figure 15: Estimates of labour, capital and multifactor productivity, annual (index June 1995=100)

Source: ABS Cat 3204013 and ACTU calculations

127. Labour productivity continued to increase by all available measures over the year to September

2015. This is in a context where all measures of labour productivity exhibit volatility from year to

year. GDP per capita increased by 1.0% in the year to September 2015 the same as the year to

September 2014. GDP per hour worked for the market sector increased by 2.0% in the year to

September 2015 up from a 1.6% increase in the year to September 2014. The rate of

productivity growth has picked up by all measures over the four and a half years since March

2011, as shown in Figure 16 below.

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Figure 16: Measures of labour productivity, indexes, Dec 2005=100 to Sept 2015

Sources: ABS 5206, seasonally adjusted, and ACTU calculations, and see Statistical report – AWR 2015-16 p3. The marketsector excludes services where output is not well measured.

Figure 17: Annual growth rates in various labour productivity measures, year on year

Sources: ABS 5206, seasonally adjusted, and ACTU calculations, and see Statistical report – AWR 2015-16 p4. The marketsector excludes services where output is not well measured.

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128. GDP per hour worked in the industry in two of the more award reliant industries, health care,

and food and accommodation, grew at almost the same annual rate, 0.9%, as the whole

economy, 1.0%, in 2014-15. This is shown in Figure 18. These are very labour intensive industries

where labour productivity would not be expected to grow as fast as the rest of the economy which

is more capital intensive and can increase labour productivity by adding to capital and / or

improving technology. Retail, another labour intensive area which is being affected by online

sales, still has growing labour productivity.

Figure 18: Growth in labour productivity (GDP per hour worked) in 2014-15

Source: ACTU calculations based on ABS 5204

129. As will be addressed in the section Securing a fair share of productivity growth, the real value of

the NMW has not kept pace with productivity growth, either at the total-economy level or in the

more award-reliant industries.

130. The increase we seek in this review would ensure that workers reliant on minimum wages

receive a fair share of recent productivity growth, while restoring some ground lost in previous

years.

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Arts and recreation servicesTransport, postal and warehousing

Professional, scientific and technical servicesAdministrative and support services

ManufacturingEducation and training

ConstructionRental, hiring and real estate services

Retail tradePublic administration and safety

Accommodation and food servicesHealth care and social assistance

ALL INDUSTRIESWholesale trade

Information media and telecommunicationsAgriculture, forestry and fishing

Other servicesFinancial and insurance services

Electricity, gas, water and waste servicesMining


International comparisons of productivity growth

131. Australian workers are among the most productive in the world. On average, Australian workers

produce goods and services worth US$53 per hour worked, in Purchasing Power Parity (PPP)

terms. This compares to an OECD average of $46 per hour worked. Australia’s level of labour

productivity is higher than that of the United Kingdom ($48), Canada ($48), New Zealand ($36)

and most other OECD countries, as shown in Figure 19.

Figure 19: Level of labour productivity (GDP per hour worked) in OECD countries in 2014, US dollarsconverted at Purchasing Power Parity

Source: OECD Stat https://stats.oecd.org/Index.aspx?DataSetCode=PDB_LV

132. Australia’s level of labour productivity is 16 percentage points higher than the OECD average

and thirteenth highest out of the 38 OECD countries. Nonetheless labour productivity has grown

at a faster rate in Australia than in any of the countries to which Australia is usually compared. On

average, Australian labour productivity grew by 1.7% per year between 2009 and 2014 –

significantly faster than the OECD average of 0.9%.

18.524.1

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0 10 20 30 40 50 60 70 80 90

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USANorway

Luxembourg

GDP per hour worked in 2014, US dollars PPP

https://stats.oecd.org/Index.aspx?DataSetCode=PDB_LV


Figure 20: Average annual labour productivity growth in OECD countries – 2009 to 2014

Source: OECD Stat (http://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR )

133. Australia’s labour productivity continues to grow at a strong rate from a high base. Low-paid

workers should share in the benefits of this growth. The OECD and the IMF recognise that higher

inequality worsens productivity and growth, and that inequality is related to slow growth in wages

at the lower end.

134. According to the OECD (2015)

The rise of income inequality .. is estimated to have knocked 4.7 percentage points offcumulative growth between 1990 and 2010, on average across OECD countries.. The keydriver is the growing gap between lower-income households – the bottom 40% of thedistribution – and the rest of the population. … In particular. low-skilled temporaryworkers face substantial wage penalties, earnings instability and slower wage growth. 57

57 OECD 2015b In It Together: Why less inequality benefits all, May, p15. http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm

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OECD - TotalCzech Republic

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Euro area (19 countries)European Union (28 countries)

IsraelSlovenia

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Annual average growth in GDP per hour worked, constant prices, %

http://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR

http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm



135. The new and eminent chief economist at the IMF, Maurice Obstfeld, said on 4 January 2016:

Trends in inequality also warrant attention. Despite considerable global convergencein national per capita incomes, a more equitable income distribution within countrieshas not necessarily followed. This inequality has implications for overall economicproductivity (for example, through health outcomes) and for the political sustainabilityof market-friendly policies.58

Unit labour costs and the labour share of income

136. The Panel made the following observation regarding real unit labour costs in its 2014-15

decision:

Real unit labour costs remain at historically low levels. The unit labour cost datashows, in aggregate, an absence of cost pressures from the labour market. 59

137. Real unit labour costs had risen by 0.8% in 2014, and have barely increased to 0.9% for the

year 2015. The Panel’s observation thus remains an accurate summary of the state of unit labour

costs in Australia.

138. Australia’s real unit labour cost growth rate of 0.5% over the year to September 2015 is not

high compared with other OECD countries, as shown in Figure 21 below. The OECD average unit

labour cost grew by more than twice as much, at 1.3%.

58 http://www.imf.org/external/pubs/ft/survey/so/2016/INT010416A.htm59 FWC 2015 AWR 2014-15 [20]

http://www.imf.org/external/pubs/ft/survey/so/2016/INT010416A.htm


Figure 21: Growth in real unit labour costs, OECD countries, year to September 2015

Source: OECD Data extracted on 02 Mar 2016 06:49 UTC (GMT) from OECD.Stat , unit labour costs, index, seasonally adjusted, andACTU calculations

139. Over the year to December 2015, Australia’s real unit labour costs rose by only 0.9% compared

with 0.8% for the year before (seasonally adjusted, ABS Cat 5206042). Real unit labour costs had

been declining in the run up to the GFC when they reached record low levels, then rose

throughout the mining boom reflecting the influence of faster growing labour costs in the mining

sector relative to the rest of the economy. The December 2015 value is the first time in eight

years that real unit labour costs have reached the level before the GFC, at December 2007,

shown in the following Figure. They are still 6.8% below the level of twenty years ago, and 12.0%

below the level of thirty years ago.

140. Real unit labour costs provide a measure of the inflation-adjusted cost of employing labour to

produce a given quantity of output. Changes in real unit labour costs reflect changes in the wages

share of total income in the economy. The movements in labour’s share of income mirror the

changes in the real unit labour cost and the ground that labour has lost in wages over a long

period. This is shown by comparing the movement of the wages share of total income Figure 22

with the movement in the real unit labour cost in Figure 23.

-3.4-2.4

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Czech RepublicNetherlands

BelgiumJapan

SloveniaSpain

SwitzerlandSweden

AustraliaFrance

Euro area (19 countries)Slovak Republic

CanadaKorea

NorwayFinland

ItalyUnited Kingdom

IsraelOECD - TotalNew Zealand

AustriaGermany

United StatesDenmarkHungaryEstonia

Per cent growth over year to September 2015

http://stats.oecd.org/index.aspx?DatasetCode=ULC_EEQ


Figure 22: Share of compensation of employees in total factor income, 1995-2015

Source ABS 5206007, seasonally adjusted, and ACTU calculations

Figure 23: Real Unit Labour Costs, index, 1995-2015

Source: ABS 5206042, seasonally adjusted.

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141. The ABS estimate of the wages share of income continues to fall within the more award-reliant

industries, as shown through their increase in profits share, the mirror image, in Figure 24. The

wages share of income fell in three more award reliant industries over 2014-2015, with the

fourth one unavailable as it’s not included the ABS market sector measure of output. The wages

share of income fell in 2014-15 by one percentage point each in Retail, and Administrative and

Support services, and by two percentage points in Accommodation and Food Services, with the

fourth, Health and Social Support breakdown unavailable.

142. The wages share of income in Accommodation and Food Services fell from a peak of 87% in

1997-98, to 80% in 2008-09 (the final year before the Fair Work Act), to 77% in 2014-15. The

wages share in Retail Trade was 79% in 1997-98, 74% in 2008-09, and 70% in 2014-15. The fall

in the wages share in these industries is equivalent to a fall in real unit labour costs. And yet

these are labour intensive industries where employment is growing the fastest.

143. Minimum wages have grown more slowly than average wages, so it follows that minimum

wages have lagged even further behind productivity growth. As shown the section Securing a fair

share of productivity growth the real value of the NMW has not kept up with productivity growth

over the past decade, including within the more award-reliant industries. We submit that very

modest rises in the real value of minimum wages have contributed to the failure of the overall

labour share of income to recover to previous levels.

Profits144. The share of income flowing to capital (the profits share of income) has increased in the past

decade (the mirror image of the wage share of factor income), as noted by the Panel in its 2013-

14 decision.60 The Panel noted in its decision of 2014-15 that they still assessed the factor

shares of income and concluded that “longer-term trends in the labour share of national income

should be kept in mind, as they can influence assessments of the fairness of, and relative

standard of living provided by, minimum wages.”61

145. The share of profits (payments to capital) in total factor income is shown in Figure 24, for two

award reliant industries, mining and two measures of the market sector of the economy where

the output is more reliably measured. The fall in the wages share / rise in the profits share

indicates that average real wages have not grown as rapidly as labour productivity especially in

the more award-reliant industries.

60 [2014] FWCFB 3500, [24]61 FWC AWR 2014-15 [189]


Figure 24: Shares of profits in factor income by industry, annual, 1995-2015

Source: ABS 5260.0.55.002 Estimates of Industry Multifactor Productivity, Australia

146. Figure 24 above shows the falls in the mining profits share since 2010 in that very capital

intensive industry, due to lower commodity prices and lower returns to mining sector assets. The

slight fall in profits share over 2015 in the two relatively capital intensive market sectors also

reflects the fall in commodity prices and asset pricing in resource dependent sectors including

mining. The key point is that this is not due to any increase in compensation of employees, but

rather a fall in payments to capital.

147. This is reflected in Chart 3.2 of the AWR Statistical Report 2015-16. The growth rate in

company gross operating profits of close to zero in 2015 reflects the fall in commodity prices and

assets in the resource dependent sectors. Moreover these are not sectors which rely on minimum

wages much relative to other sectors.

148. Awarding the increase we seek in this Review would ensure that low-paid workers share in the

benefits of productivity growth. Through reducing inequality, this would promote economic

growth.

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Accommodation and Food Services 12 Market sector

16 Market Sector


Business bankruptcy rates

149. The FWC Statistical Report for the AWR 2015-16 shows that the business bankruptcy rate

continued to fall from 0.38% in 2013-14 down to 0.33% for 2014-15, below the lowest point of

0.34% at the GFC based on Australian Financial Security Authority (ASFA) data. The bankruptcy

rate is defined as the number of business-related bankruptcies divided by the number of owner

managers of an unincorporated enterprise in the economy.62

150. There were fewer business-related bankruptcies in 2014-15 than in the last twelve financial

years, since the start of the ASFA data series in 2003-04. There were 3 838 business-related

bankruptcies in the past financial year, down nearly 12.6% from the 4 391 recorded in 2013-14.

The number of business-related bankruptcies recorded in 2015 was the lowest in the twelve

year history of ASFA’s bankruptcy time series. The fall in business-related bankruptcies has been

broad-based across all states and territories including WA and Queensland. 63

151. The falling rate of business-related bankruptcies is consistent with the current positive

evidence for unexpectedly good business conditions.

Business entry and exit

152. The number of businesses overall grew by 1.0% in 2014-15, the same rate as the previous

year, consistent with higher entry than exit rates in both years. This is a sign of a continuing

healthy business environment, especially where increasing firm concentration would be expected

to reduce the number of businesses.

153. Entries were 13.4% of the number of businesses in at the start of 2014-15, compared with

13.7% in 2013-14. Exits were 12.4% in 2014-15 compared 12.7% in 2013-14.

62 See Chart 3.3 and footnote p7 of the FWC AWR Statistical Report 2015-16.63 Australian Financial Security Authority 2015, ‘Provisional business and non-business personal insolvency time series December 2015 update’,Australian Government, Canberra. Available from: https://www.afsa.gov.au/resources/statistics/provisional-business-and-non-business-personal-insolvency-statistics/time-series [Accessed23 March 2016].

https://www.afsa.gov.au/resources/statistics/provisional-business-and-non-business-personal-insolvency-statistics/time-series

https://www.afsa.gov.au/resources/statistics/provisional-business-and-non-business-personal-insolvency-statistics/time-series


154. Two of the more award-reliant industries, Health Care, and Accommodation and Food, recorded

the fastest growth in the number of businesses in 2014-15 as shown in Table 6 below. The retail

business shrinkage, -1.8%, contrasts with the increase in employment of 3.7%. This may be due

to increasing firm concentration and use of internet purchase in that sector. The number of

businesses operating in the Health Care and Social Assistance industry increased by 3.9% over

the year, while those in the Accommodation and Food Services industry rose by 2.4%. This is

shown in Table 6. The award reliant industries are a big and increasing share of industry

employment.


Table 6: Growth in the number of businesses in 2014-15 by industries

Industry

Growth in number ofbusinesses, %

2014-15

Share ofemployment,November 2015

Growth in number ofemployees, %

Year to November2015

Agriculture, Forestry and Fishing -2.4 2.6 -1.4

Mining -2.9 1.9 -2.3

Manufacturing -0.8 7.1 -6.0

Electricity, Gas, Water and Waste Services 1.8 1.2 1.3

Construction 1.8 8.8 -0.2

Wholesale Trade 0.0 3.3 0.7

Retail Trade -1.8 10.7 3.7

Accommodation and Food Services 2.4 6.9 1.2

Transport, Postal and Warehousing 0.2 5.1 1.5

Information Media and Telecommunications 1.5 1.9 4.4

Financial and Insurance Services 5.1 3.8 10.0

Rental, Hiring and Real Estate Services 1.7 1.8 -2.1

Professional, Scientific and Technical Services 1.4 8.6 7.3

Administrative and Support Services 0.7 3.5 9.6

Public Administration and Safety -1.0 6.2 -0.1

Education and Training 2.6 7.9 3.9

Health Care and Social Assistance 3.9 12.8 11.0

Arts and Recreation Services -0.3 1.9 -2.5

Other Services 1.4 4.0 2.1

All Industries 1.0 100.0 3.0

Source: ABS cats 8165, 6291.0.55.003 and ACTU calculations. First column shows the percentage change from businessesoperating at the start of the 2014-15 financial year.

155. These figures suggest that business continues not to face adverse conditions.


Inflation

156. Inflation was at 1.7% for the year 2015, the same as the previous year.64 According to the RBA

various measures of ‘underlying’ inflation, which strips out volatile items, ‘suggest that underlying

inflation was about 2 per cent and in line with’ its forecast. ‘The depreciation of the Australian

dollar is putting upward pressure on the price of tradeable goods’, while ‘a period of spare

capacity in the labour market’ and ‘declines in the cost of business inputs’ have put downward

pressure on inflation. 65

157. The RBA forecasts inflation between 2% and 3% over the year 2016 and 2017.66 If our claim is

accepted, we believe the contribution of the increase to inflation would be very small. It would

add less than half a percentage point at the very most, based on the level of award reliance and

the contribution of labour costs.

Wages

158. Wages growth was slow in 2015, with the Wage Price Index rising by only 2.2% in the year to

December, compared with 2.5% the year before, the slowest rate of growth in the history of the

measure. Slow growth in the private and public sectors continues.

64 ABS 6401 and FWC AWR Statistical Report 2015-16 Chart 4.1.65 RBA 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, pp.53-54.66 RBA 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, p.61.


Figure 25: Annual growth in the Wage Price Index,1998-2015

Figure 26: Growth in public & private sectorWPI, 2005-2015


159. Wages growth continues to slow across the board according to the Wage Price Index. Wages

growth in each industry for the year 2015 was below the industry’s long-run average, as shown in

Figure 27.

2.0

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Figure 27: Wages growth and the long run average, by industry

Source: ABS 6345 and ACTU calculations

160. The WPI is not alone in showing a significant deceleration in wages growth. All measures of

wages have grown below their average pace, as shown in Figure 28.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Administrative and support services Mining

Construction Professional, scientific and technical services

Wholesale trade Rental, hiring and real estate services

All industries Transport, postal and warehousing

Information media and telecommunications Public administration and safety

Electricity, gas, water and waste services Accommodation and food services

Arts and recreation services Other services

Health care and social assistance Manufacturing

Retail trade Education and training

Financial and insurance services

Annual per cent growth

10 year annual average growth Year to December 2015 growth


Figure 28: Measures of wages growth

Source: Average compensation per employee is from ABS 5206. Wage Price Index from ABS 6345. AWOTE and AWE fromABS 6302. Minimum wage from past FWC/AFPC/AIRC decisions. Average annualised wage increases in federal enterpriseagreements (‘EBAs’) from the Department of Employment Trends in Federal Enterprise Bargaining. Rates of change areACTU calculations. Note that median full time earnings series in ABS Cat 6130 ceased to be published at 2013.

161. Wages growth has slowed more than would have been expected given the state of the

macroeconomy. The RBA noted the decline in wage growth in its February 2016 Statement on

Monetary Policy, observing that “the decline has been more pronounced than that implied by the

historical relationship with the unemployment rate.”67 That is, in the RBA view, wage growth has

been even slower than that which would be expected given the relatively high rate of

unemployment. Wage growth is even weaker than would be expected given the weakness of the

labour market. The RBA indicates that a lower level of inflationary expectations and an increase

in ‘labour market flexibility’ may help explain this. The ACTU observes that wages have not kept

pace with labour productivity growth and GDP growth. This reinforces the case for minimum wage

increases to address this where labour market flexibility’ does not.

162. The relatively modest increases in minimum wages awarded in previous Reviews may have

contributed to the extent and longevity of the fall in wages growth. The minimum wage has

increased 3.1% per annum on average over the last 10 years. This is a period over which the cpi

average growth is 2.6% per annum. This means a bare 0.5% real growth in the minimum wage

over the period.

67 p.57 RBA 2016, Statement on Monetary Policy, February, RBA, Sydney.

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Average wage increase in EBAs lodged in Sept 2015quarter

Average wage increase in current EBAs

Minimum wage

Average weekly earnings (all employees)

Average weekly ordinary time earnings (adult)

Wage Price Index

Average compensation per employee

Per cent

latest annual, % 10 year average growth, annual %


THE STATE OF THE LABOUR MARKET

163. This chapter of the ACTU’s submission shows that:

a) Employment increased 398, 300 or 2.6% in the year to January 2016, double that of the

previous year; 42% of which was the award reliant Health Care and Social Assistance

b) The unemployment rate has fallen slightly from 6.3% at January 2015 to 6.0% at January

2016, seasonally adjusted;

c) the number of unemployed persons per vacancy has fallen from 4.7 to 4.0 in the year to

November 2015;

d) The participation rate has risen for all persons aged 15 and over was 65.2% (seasonally

adjusted) in January 2016, up from 64.7% in January 2015, notwithstanding the ageing

population, whereas participation for age 15 to 65 rose to an all-time high of 77.3%;

e) Youth unemployment has fallen faster than total unemployment, from 13.6% in January

2015 to 13.0% in January 2016;

f) The large variation in the unemployment rate over time is most clearly related to the level

of aggregate demand in the economy and the pace of economic growth rather than issues

specific to the labour market;

g) Employment grew in all of the four most award reliant industries. It grew very rapidly in

Health Care and Social Assistance, at 9.7% over the year to November 2015, and

Administrative and Support Services, 8.2%. It also grew faster in Retail at 3.1% than total

employment, and at 1.8% in Accommodation and Food. Overall there is no relationship

between the level of award-reliance in an industry and the pace of employment growth;

and

h) The unemployment rate has improved in six jurisdictions, with the other two worsening

only very slightly. The dispersion in labour market conditions across regions remains

relatively low reflecting the degree of labour mobility between states.

164. The labour market indicators are above forecast and there is no sign that this will not continue,

contrary to expectation. Our claim is appropriate given the current state of the Australian labour

market.

Employment and unemployment

165. Employment has increased unexpectedly over the year to January 2016. There were 398, 300

more Australians in work in January 2016 than in January 2015, a growth of 2.6% in the numbers

employed. This is twice the increase of the previous year of 1.3%, and above expectation. Almost


half, 47%, of the employment growth was in part-time work68, 1.5 part time workers being

employed for every full time worker employed in the year to January 2016. The share of part time

workers in employment has increased rapidly, standing at 31.1% in January 2016, up from

28.3% ten years before.69

166. However the employment increase of 298, 000 was largely met by the labour force increase of

276, 000 over the year to January 2016. The other 22, 000 increase in employment is matched

by an almost exactly equal fall in unemployment of 22, 300.

167. Moreover the employment to population ratio has increased from 60.6% in January 2015 to

61.3% in January 2016, the highest in two and half years.

168. The unemployment rate has fallen slightly from 6.3% at the January 2015 down to 5.8% in

November, to 6.0% at January 2016 (seasonally adjusted).

Figure 29: Unemployment rate over the last 20 years, per cent of the labour force

Source: ABS 6202

68 ABS Cat 6202, which defines part-time employed persons as those who usually work less than 35 hours per week, and actually worked lessthan 35 hours in the survey reference week in all of their jobs. Full-time employed persons are defined as those who usually work 35 hours ormore per week, regardless of how many hours they actually worked, or those who actually worked 35 hours or more in the reference weekdespite usually working less than 35 hours per week. This definition results in a bias towards people being categorised as employed full-time. Itdoes not distinguish whether their employment status is ‘casual’ or ‘permanent’.http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/6202.0Main%20Features4Sep%202013?opendocument&tabname=Summary&prodno=6202.0&issue=Sep%202013&num=&view=69 ABS Cat 6202, seasonally adjusted

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mailto:http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/6202.0Main Features4Sep 2013?opendocument&tabname=Summary&prodno=6202.0&issue=Sep%202013&num=&view

mailto:http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/6202.0Main Features4Sep 2013?opendocument&tabname=Summary&prodno=6202.0&issue=Sep%202013&num=&view


169. Comparison of unemployment with vacancies provides an indication of the level of involuntary

unemployment in the economy and its sensitivity to the level of aggregate demand in the

economy, as shown in Figure 30. The ratio of number unemployed to number of vacancies is

countercyclical, increasing in downturns and falling in upturns. It has fallen from 4.7 to 4.0

unemployed persons per vacancy in the year to November 2015. This is despite the increase in

the participation rate in that time. That is, even though people are entering the labour market,

they are finding employment at a faster rate than previously.

Figure 30: Ratio of number of unemployed to number of vacancies, May 1979 to November 2015

Sources: ABS 6202, 6354 (original) and ACTU calculations. Vacancies data is unavailable from Feb2008 to Feb 2010

Participation in the labour force and the effect of ageing

170. Labour force participation has continued to rise over the two years to January 2016, despite the

growing population over 65, and with help from an increase in youth participation. The

participation rate for all persons aged 15 and over was 65.2% (seasonally adjusted) in January

2016, up from 64.7% in January 2015. Labour force participation is of course higher among

people aged 15-64 than for the total which includes those over 65. Participation rate for 15-64

age group rose to 77.3% in January 2016 up from 76.5% a year earlier, seasonally adjusted, an

increase of 245, 000 in just a year.

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unemployed per vacancy, original

Oil price increaseRecession

Asian crisis GFC


Figure 31: Participation rates, total and aged 15-65, percentages of respective group populations,1996-2016

Source: ABS Cat 6202, seasonally adjusted

171. The labour force over 65 increased by 7.2% over the year to January 2016, more than twice as

fast as the increase in the population over 65 of 3.4%, and that contributed to the total increase

in the participation rate. While the participation rate over 65 is low at 12.7%, it has risen from

12.2% a year ago, by 31,000, to a total of 460, 000 active in the workforce who are over 65. This

is seen as the difference between the total numbers participating and those aged 15 to 65

participating as shown in Figure 32. Participation in those aged over 65 is likely to continue rising.

60.0

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ent o

f gro

up p

opul

atio

n

Participation rate ; Persons ; 15-65, % Participation rate ; Persons ; total, %


Figure 32: Labour force, total, and aged 15 to 65 years old, 1000s, 1996 to 2016

Source: ABS Cat 6202, seasonally adjusted

172. At 77.3% in January 2016, the participation rate for people aged 15-64 is the highest it has

ever been over the year since 1978.

173. With participation rates continuing to increase, a ‘discouraged worker effect’ due to the

increased rate of unemployment is not apparent in recent years. Changes in the unemployment

rate summarise the cyclical state of the labour market, which is dependent on the level of

aggregate demand, so that most unemployment is seen to be involuntary.

The youth labour market

174. The youth participation rate which fell by nearly five percentage points in six years post GFC,

from 71.2% in July 2008 to 66.3% in October 2014 has also recovered by one percentage point

over the 15 months to January 2016, as shown in Figure 33 below. The trend fall in youth

participation rate since the GFC is the result of a complex of factors, including the interaction

between changing labour market and education conditions.

8,000

9,000

10,000

11,000

12,000

13,000

Jan-

1996

Jan-

1997

Jan-

1998

Jan-

1999

Jan-

2000

Jan-

2001

Jan-

2002

Jan-

2003

Jan-

2004

Jan-

2005

Jan-

2006

Jan-

2007

Jan-

2008

Jan-

2009

Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Jan-

2016

1000

s

Labour force total ; Persons ; 15-65 Labour force total ; Persons ;


Figure 33: Participation rate, aged 15 to 24, percentage age group population, 1996-2016

Source: ABS Cat 6202, seasonally adjusted; 15-24 rate is trend ACTU calculation

175. The rise in youth participation has also been met by a fall in the youth unemployment rate, from

13.6% in April 2015, the highest since 2002, down to 13.0% in January 2016. The movement in

the youth unemployment rate tends to track the total unemployment rate, with the difference

between youth and total unemployment narrowing as unemployment falls and increasing as

unemployment rises. Currently youth unemployment is coming down faster than total

unemployment, which has come down from 6.1% to 5.8%, 0.3% in the same 10 month period.

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

71.0

72.0

73.0

Jan-

1996

Jan-

1997

Jan-

1998

Jan-

1999

Jan-

2000

Jan-

2001

Jan-

2002

Jan-

2003

Jan-

2004

Jan-

2005

Jan-

2006

Jan-

2007

Jan-

2008

Jan-

2009

Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Jan-

2016

Per c

ent

Australia ; Participation rate ; 15-24, %


Figure 34: Unemployment rate, total, and 15-24, trend, 1996-2016.

Source: ABS Cat 6202, rate for 15-25 yo is trend ACTU calculation

176. Australia’s youth unemployment has come down from the previous year as have most of the

OECD country figures, in the aftermath of the GFC. Australia’s is just below the OECD average, as

shown in Figure 35 below.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan-

1996

Jan-

1997

Jan-

1998

Jan-

1999

Jan-

2000

Jan-

2001

Jan-

2002

Jan-

2003

Jan-

2004

Jan-

2005

Jan-

2006

Jan-

2007

Jan-

2008

Jan-

2009

Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Jan-

2016

Per c

ent

Australia ; Unemployment rate ; 15-24, % Australia ; Unemployment rate ; total, %


Figure 35: Youth unemployment rate in OECD countries in the September quarter of 2015

Source: OECD Stat. *July quarter

177. The relationship between total unemployment and youth unemployment cannot be attributed to

movements in wages or the minimum wage and awards. The evidence suggests that movements

in unemployment in Australia have been cyclical in nature and are related to the state of

aggregate demand and the pace of economic growth. There are not structural changes occurring

in the labour market which would for instance change the relationship between youth and other

sectors of the labour market.

178. The movements in the unemployment rate are much bigger than wage changes over time and

primarily reflect the state of aggregate demand for the economy. The recent fall in the

unemployment rate aligns with the higher than expected growth in the economy of 3% for 2015.

Wage increases will encourage growth in aggregate demand.

13.413.8

0 10 20 30 40 50

JapanGermany

MexicoIceland

IsraelKorea

NorwaySwitzerland

AustriaUnited States

Estonia*Netherlands

DenmarkCzech Republic

CanadaAustralia

OECD - TotalSlovenia

United KingdomChile

New ZealandHungary

LuxembourgTurkeyPoland

SwedenIreland

BelgiumFinlandFrance

Slovak RepublicPortugal

ItalySpain

Greece

Per cent


Employment by industry

179. Employment grew in all four most award reliant industries. Employment growth in Health Care

and Social Assistance, that award reliant sector, has grown by 134,700, or 9.7% over the year to

November 2015, as shown in the following figures. This is an extraordinary 42% of the entire

trend increase in employment in the year to November 2015. This is an indication of how the

ageing population is employment creating. Almost one in eight workers is in the Health Care and

Social Assistance sector, 12.8% of total employment.

180. Retail employment grew 38,100 on trend, a growth rate of 3.1%, reflecting the growth in

consumption. Administrative and Support Services grew by 31,600 workers, 8.2%.

Accommodation and Food Services grew by 15,000 or 1.8%.

Figure 36: Growth in employment in the year to November 2015 (thousands of persons)

Source: ABS 6291.0.55.003 (trend) and ACTU calculations.

-49.5-9.3-8.8-5.6

0.81.01.53.33.44.5

10.211.715.0

31.632.834.738.1

67.3134.7

-75.0 -50.0 -25.0 0.0 25.0 50.0 75.0 100.0 125.0 150.0

ManufacturingAgriculture, Forestry and Fishing

MiningRental, Hiring and Real Estate Services

Electricity, Gas, Water and Waste ServicesPublic Administration and Safety

Arts and Recreation ServicesOther Services

ConstructionWholesale Trade

Information Media and TelecommunicationsTransport, Postal and WarehousingAccommodation and Food Services

Administrative and Support ServicesEducation and Training

Financial and Insurance ServicesRetail Trade

Professional, Scientific and Technical ServicesHealth Care and Social Assistance

Change in employment over year to November 2015, 1000s


Figure 37: Growth in the year to November 2015, per cent

Source: ABS 6291.0.55.003 (trend) and ACTU calculations.

181. The four most award reliant sectors’ share of employment has jumped from 33.0% in November

2014 to 33.9% in November 2015. Taken together, the four industries that are the largest

employers of award-only workers grew at 5.8%, twice the pace of the overall labour market in the

year to November 2015, with employment growing by 2.8%, nearly twice as fast as the year

before.

182. The wide range of growth in employment across industries is shown in Chart 6.5, p.48 of the

Statistical Report of the AWR 2015-16. Figure 38 shows the big range of total growth for the ten

years in employment across the four more award reliant industries compared with the total

employment growth on trend over ten year to November 2015. Health and Social Assistance grew

50.8% and Accommodation and Food grew 23.1%, compared with total employment growth of

19.6% over the ten years. Administrative and Support Services grew at 19.4% and Retail at 9.0%

over the ten year period to November 2015.

-5.4-3.8

-3.0-2.5

0.10.30.60.70.7

1.21.81.9

2.83.1

3.64.9

7.08.2

8.69.7

-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0

ManufacturingMining

Agriculture, Forestry and FishingRental, Hiring and Real Estate Services

Public Administration and SafetyConstruction

Electricity, Gas, Water and Waste ServicesArts and Recreation Services

Other ServicesWholesale Trade

Accommodation and Food ServicesTransport, Postal and Warehousing

Employed totalRetail Trade

Education and TrainingInformation Media and Telecommunications

Professional, Scientific and Technical ServicesAdministrative and Support Services

Financial and Insurance ServicesHealth Care and Social Assistance

Growth in employment, year to November 2015, per cent


Figure 38: Growth in employment in the four more award reliant industries and total, trend, 10 yearsto November 2015.

Source: Source: ABS 6291.0.55.003 (trend) and ACTU calculations.

183. As previously, employment growth in the most award-reliant industries is likely to be strongly

influenced by industry specific factors. Retail service and sales includes online sales which are

less labour intensive. Accommodation and food services is likely to be sensitive to movements in

the Australian dollar and preferences related to cooking. Health and social support is related the

ageing population.

184. There is no consistent long-term trend in the employment shares of these award reliant

industries that can be related to specific changes in minimum wages and awards. Growth in

those consumption service industries may be related to higher expenditure related to higher

household incomes related to higher wages. There is no evidence that the Panel’s previous

decisions have dampened growth in those industries.

185. We can reiterate that there is no apparent relationship between the level of award reliance in

an industry and the projected rate of employment growth to November 2019 by the Department

of Employment, as indicated in the ACTU submission to last year’s Review.70

70 ACTU submission to AWR 2014-15 [337],][338]

9.0

23.119.4

50.8

19.6

0

5

10

15

20

25

30

35

40

45

50

55

10 year growth inRetail

employment,%

10 year growth inAccomm and FSemployment,%

10 year growth inAdmin and SS

employment,%

10 year growth inHealth and SAemployment,%

10 year growth intotal employed, %

Per c

ent i

ncre

ase

in e

mpl

oym

ent


Regional dispersion of labour force conditions

186. The state of the labour force has been uneven across the country. The unemployment rates of

the states and territories range from 4.4% in the Northern Territory to 7.1% in South Australia,

seasonally adjusted.

Figure 39: Unemployment rate, States and total, seasonally adjusted, January 2016, per cent of labourforce

ABS 6202

187. Figure 40 shows the overall reduction in numbers of unemployed over the year to January 2016.

Even in the mining dependent states of WA and Queensland, the increase in unemployed

numbers is around 4000 each over the year. Mining related sectors are amongst the least award

reliant.

4.04.9

5.55.9

6.06.3

6.46.5

6.8

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

NTACT

New South Wales Western Australia

Australia Victoria

Queensland Tasmania

South Australia

Per cent of labour force


Figure 40: Change in unemployed numbers, states and total, year to January 2016, 1000s.


188. The spread of unemployment results is typical and the range has narrowed in recent years as

shown in Figure 41 below which shows trend unemployment rates over the last ten years. This

does not suggest the mining boom has widened state disparities in unemployment rates.

Figure 41: Unemployment percentage of work force, States, trend, over the 10 years to January 2016

ABS 6202, trend

-22.3

-19.2

-6.5

-4.3

-0.4

-0.0

1.0

3.9

4.3

-25.0 -22.5 -20.0 -17.5 -15.0 -12.5 -10.0 -7.5 -5.0 -2.5 0.0 2.5 5.0

Australia

New South Wales

South Australia

Victoria

Tasmania

NT

ACT

Queensland

Western Australia

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Per c

ent o

f wor

kfor

ce

Australia New South Wales Victoria

Queensland South Australia Western Australia

Tasmania Northern Territory Australian Capital Territory


189. Over the year to January 2016, the unemployment rate fell in six out of eight jurisdictions. The

change in unemployment ranged from falls in the unemployed share of the workforce of 0.8

percentage points in South Australia and 0.7 percentage points in NSW, to increases of 0.3

percentage points in Western Australia and the ACT, seasonally adjusted.

190. Figure 42 compares the changes in percentage of the workforce unemployed over the year to

January 2016 with the average annual changes over the 10 years to January 2016. By contrast

with the current year six out of eight experienced increases in unemployment over the last ten

years, indicating a better performance this year. The performance was better this year than over

the last ten years on average. The anticipated end of the mining boom did not worsen

unemployment in Queensland. The rise in unemployment in WA was less than the previous year.

The biggest improvement, of 0.7% in South Australia was related to its new energy policies.

Figure 42: Change in unemployment rate, over year to January 2016 and annual average over 10 yearsto January 2016

Source: ABS 6202 and ACTU calculationSource: ABS 6202, ABS 6291.0.55.001 and ACTU calculations. Standard deviation of regional unemployment rates isbased on original data, which is then seasonally adjusted by the ACTU using X12-ARIMA.

191. The relatively small disparity in unemployment rates across States reflects the degree of labour

mobility between them. If workers moved around less across State borders to find work then

higher unemployment would be much more persistent in some States than others. There would

-0.76

-0.71

-0.31

-0.20

-0.10

-0.05

-0.03

0.25

0.34

0.22

-0.01

0.09

0.10

-0.02

0.15

-0.21

0.17

0.15

-0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40

South Australia

New South Wales

Australia

Victoria

Tasmania

Queensland

Northern Territory

Western Australia

Australian Capital Territory

Percentage of workforce, change

annual average change over 10 years change over year


be rigidities in the labour market across States. This is confirmed by the persistently higher

unemployment in the island State of Tasmania between which and the other States less mobility

would be expected. There is no evidence that unemployment disparities and changes in them are

related to changes in the national minimum wage or modern award minimum wages.


THE ECONOMIC OUTLOOK192. The Australian economy in many respects has performed towards the top end of the range or

exceeded forecasts in 2015. In particular GDP grew more at 3.0% rather than the 2.2% to 2.5%

anticipated.

193. We anticipate that Australia’s economy will grow faster this year than it did last year, and that

growth will pick up further in 2017.

194. There is cause for optimism about the outlook for the labour market. Forward-looking indicators

of the state of the labour market, including job advertisements, job vacancies, and consumers’

unemployment expectations, have all improved in recent months. Forecasts from the IMF and

OECD expect the unemployment rate to fall.

195. Whatever circumstances arise, we maintain that the minimum wage increase we request is

warranted, and will not be detrimental to the economy, and is likely to improve it.

The growth outlook

196. The 3.0% growth in GDP for the year to December 2015 released on 2 March 201671 exceeded

the RBA forecast of 2.5% for that year.72 It may be that the decline in the Australian dollar after

the mining boom and with falling commodity prices, is in fact benefitting the economy. We would

expect the higher growth in GDP to continue through 2016 and 2017, and to be at the top end of

the RBA range forecast of 2.5% to 3.5% for 2016 and 2017. The corollary is that we expect

forecasts to be revised upwards in response to the better than expected results.

197. This disparity between forecast and actual is symptomatic of the uncertainty inherent in

economic forecasting. The multitude of factors that can affect the Australian economy – from

international developments to domestic policy decisions to the ephemeral confidence of

consumers and households – cannot be predicted with any precision. The Reserve Bank can only

be 90% sure that GDP growth in 2016 will be somewhere between 0.4% and 4.5%.73

198. The Treasury also downgraded its Budget forecast of GDP growth of 2.75% for 2015-16 to 2.5%

in its MYEFO of 15 December 2015, prior to the release of the 2015 GDP growth figures.74

71 ABS Cat 5206.0, released72 Table 6.1, p.61, RBA 2016 Statement on Monetary Policy February73 Graph 6.3, p.63, RBA 2016 Statement on Monetary Policy February.74 The Treasury 2015 MidYear Economic and Fiscal Outlook December, Part 2 p.5.


199. The OECD had also downgraded its forecasts from November 2015 to those in February 2016

for world GDP, indicating it will have the same growth in 2016 as 2015.75 Yet Australia’s growth

figure of 3.0% for 2015 has already exceeded the OECD forecast in November of 2.3%, and also

its forecast for 2016. Such variations indicate the uncertainty surrounding forecasting and may

apply to the OECD forecasts for other countries. In any case the OECD’s growth forecast for

Australia in 2016 remains the sixth highest of 23 high income OECD countries, with Greece the

lowest and Ireland the highest.

200. The IMF Article IV consultation with Australia in September 2015 indicated a 2.5% growth rate

for Australia in 2015, and has forecast 3.0% for 2016 and 3.1% for 2017.76

201. The Economist conducts a regular poll of private forecasters, most of which are major

international financial institutions. Australia’s actual GDP growth of 3.0% for 2015 exceeded the

forecasters’ average forecast of 2.6% for that year. In the latest poll of March 2016, these

forecasters expect the Australian economy to grow by 2.5% in 2016, exceeded only by South

Korea, Spain and Sweden out of 16 high income countries.77 Again based on GDP growth and

other indicators for Australia in 2015 as addressed in the Chapter on The state of the Australian

economy, we would suggest that these forecasts are too conservative.

202. The Sydney Morning Herald (SMH) Business Day surveyed a panel of 26 Economists from a

range of backgrounds and institutions published on 30 January 2016.78 Figure 43 summarises

the forecasts of the panel for the year 2016. The Figure shows the highest, median, average

(mean), and lowest forecasts by the panel. A lower median than mean indicates that most

forecasts are in the lower part of the range, while a higher median than mean indicates that most

forecasts are in the higher part of the range. While the wide range within most forecasts is

evident, many are not very different from 2015. Again real GDP forecasts do not reflect the

unexpected growth in GDP of 2015, because they were made without the knowledge of the 2015

figures released by ABS on 2 March 2016. Unemployment is forecast to remain similar to 2015.

203. We maintain that the outlook for the economy is better than forecasts would indicate, given the

GDP growth above forecast for 2015, and the slightly improved rate of unemployment in

particular.

75 OECD 2016 Interim Economic Outlook 18 February http://www.oecd.org/eco/outlook/economicoutlook.htm accessed 14 March 2016.76 IMF Article IV consultation, Country Report no. 15/274 p.4, http://www.imf.org/external/pubs/ft/scr/2015/cr15274.pdf77 Source: The Economist, 5 March 2016. Available from: http://www.economist.com/news/economic-and-financial-indicators/21693997-economist-poll-forecasters-march-averages . The forecasters included in the poll are Bank of America, BNP Paribas, Citigroup, Commerzbank,Decision Economics, Deutsche Bank, Economist Intelligence Unit, Goldman Sachs, HSBC Securities, ING, JPMorgan Chase, KBC Bank, MorganStanley, RBC, RBS, Schroders, Scotia Capital, Société Générale, Standard Chartered, and UBS.78 http://www.smh.com.au/business/the-economy/businessday-scope-economic-survey-stephen-anthony-shines-in-a-year-of-gloom-20160113-gm5f75.html, Peter Martin, 30 January 2016 accessed 13 March 2016. The panel are Stephen Anthony, David Bassanese, PaulBloxham, Chris Caton, Andrew Charlton, Bill Evans, Warren Hogan, Shane Oliver, Su-Lin Ong, Alan Oster, Michael Workman, Mardi Dungey,Renee Fry-McKibbin, Steve Keen, Guay Lim, Jakob Madsen, Bill Mitchell, Neville Norman, Nigel Stapleton, Saul Eslake, Nicki Hutley, StephenKoukoulas, Richard Robinson, Shane Garrett, Tom Skladzien, Julie Toth.

http://www.oecd.org/eco/outlook/economicoutlook.htm

http://www.imf.org/external/pubs/ft/scr/2015/cr15274.pdf

http://www.economist.com/news/economic-and-financial-indicators/21693997-economist-poll-forecasters-march-averages

http://www.economist.com/news/economic-and-financial-indicators/21693997-economist-poll-forecasters-march-averages

http://www.smh.com.au/business/the-economy/businessday-scope-economic-survey-stephen-anthony-shines-in-a-year-of-gloom-20160113-gm5f75.html



Figure 43: Forecasts of various indicators by the SMH Business Day Economic Survey, January 2016

Source: SMH Business Day survey, published 30 January 2016 http://www.smh.com.au/business/the-economy/businessday-scope-economic-survey-stephen-anthony-shines-in-a-year-of-gloom-20160113-gm5f75.html, andACTU calculations

The outlook for the labour market

204. The RBA indicates that it is ‘possible that the recent strong growth of employment contains

information about the economy not apparent in the national accounts data. Were such strength

to be sustained, the unemployment rate could decline more quickly than forecast.’79 We posit

that the around 0.5 percentage points higher than anticipated GDP growth for 2015 and the

79 RBA 2016 Statement on Monetary Policy, Feb., p.64.

-10.00

-9.00

1.40

1.90

1.00

1.25

0.10

5.40

1.00

2.50

1.50

0.00

-3.80

-6.00

5.40

-4.70

1.20

2.10

2.30

2.40

1.90

2.50

6.40

2.50

3.20

3.40

2.60

4.10

2.00

5.90

-5.00

2.50

2.00

2.25

2.40

2.00

2.65

6.50

2.50

3.25

3.80

2.75

4.50

2.00

6.00

3.00

6.30

3.10

2.80

3.00

2.50

3.30

7.40

3.00

3.50

5.20

3.20

14.00

10.00

6.30

-12.50-10.00 -7.50 -5.00 -2.50 0.00 2.50 5.00 7.50 10.00 12.50 15.00

Terms of trade change, %

Bus investment, Non-min, growth, %

CPI, growth %

Underlying inflation, %

Wage price index, growth %

RBA cash rate Dec 2016, %

Australia GDP, growth %

China GDP, growth %

US GDP, growth %

World GDP, growth %

Australia Nominal GDP, growth %

Household spending, growth %

Housing investment, growth %

Sydney home prices, growth %

Unemployment rate, % of workforce

Per cent

Highest Median Average Lowest




slightly lower unemployment rate towards the end of 2015 indicate that the unemployment rate

is likely to keep improving through 2016 and 2017.

205. The Reserve Bank of Australia’s projections indicate that the unemployment rate will fall to

around 5.7% to 5.8% by end 2016. However its 70% confidence interval ranges from around

5.0% to 6.4%.80 The OECD’s most recent forecast in November 2015 was of a 6.2%

unemployment rate for Australia in the fourth quarter of 2016, falling to 6.0% by the fourth

quarter of 2017, yet its forecast in November 2015 for end 2015 had been slightly pessimistic at

6.1% .81 The IMF forecast an average unemployment rate in 2016 of 6.1% prior to the above

forecast actual result for 2015, falling to an average of 6.0% for 2017.82

206. The labour market has shown unanticipated improvement in that employment has grown

298,000 or 2.6% in the year to January 2016, twice as fast as the previous year as indicated in

the chapter on The state of the labour market, and is forecast to continue to grow by the RBA.83

207. The ratio of unemployed persons per vacancy has fallen to around four according to ABS data

while the participation rate has improved.

208. At the same time the ABS measure of job vacancies has increased for two consecutive years

now, by 11.8% in the year to November 2015, up from an increase of 7.8% the previous year,

seasonally adjusted (the latest available data)84. The trend increase is 11.6% for the year to

November 2015, up from 6.6% the previous year. The data is based on a survey of businesses.

209. The number of job advertisements (as measured by the ANZ series85), including internet and

newspaper has grown by 8.2% over the year to February 2016, seasonally adjusted. In contrast

with the ABS data this was slightly lower than the previous year’s growth of 9.8%, but still healthy.

The trend measure for the year to February 2016 at 9.9% was only just less than the previous

year at 10.1%. Based on previous experience, the growth in job advertisements, can be taken as

an indication that employment will continue to grow.

210. As indicated in the previous Chapter, the unemployment rate has fallen slightly and the

expectation is that it is unlikely to worsen given the strength of other macroeconomic indicators.

211. There is cause for optimism that the pace of economic growth and the state of the labour

market will improve over the remainder of 2016 and into 2017. Even if this is not the case, the

minimum wage increase we propose is warranted to improve the conditions of those with low pay.

80 RBA 2016 Statement on Monetary Policy, Feb., Chart 6.5 p.63.81 OECD Economic Outlook No 98 - November 201582 IMF Article IV consultation, Country Report no. 15/274 p.4.83 RBA 2016 Statement on Monetary Policy, Feb., p.64.84 ABS Cat 635485 ANZ Australian Job Ads http://www.media.anz.com/phoenix.zhtml?c=248677&p=irol-jobad&nyo=0

http://www.media.anz.com/phoenix.zhtml?c=248677&p=irol-jobad&nyo=0


RELATIVE LIVING STANDARDS AND THE NEEDS OF THE LOW PAID

212. The relative living standards of workers reliant on minimum wages declined for many years

throughout the 1990s, 2000s and early 2010s. They declined through periods of economic boom

and slowdown, and declined under the AIRC and AFPC and FWA/FWC.

213. In the last two and a half years the minimum wage bite has flattened out and this is due to

falling wages at the top in resource based industries rather than an improvement in the real

minimum wage relative to the average. The $30/3.9% increase we seek to minimum wages in

this Review would stop any further decline in the relative living standards of low paid workers and

would help to restore some lost ground.

214. If our claim were awarded in full, and the average weekly ordinary-time earnings of full-time

adults (AWOTE) increases by 1.6% this year the same as for 2015 (compared with 2.8% in 2014),

the NMW would increase from 43.8% to 45.1% of average full-time earnings. This would still be

less than it was more than five years ago, at August 2010. This would remain below the 45.7%

minimum wage bite of mid-2009, just before the Fair Work Act came into effect.

215. If our claim was awarded and AWOTE growth increased by 1.8%, then the minimum wage bite

would increase to 45.0%. If AWOTE growth picks up to 3.0%, the minimum wage bite would

increase to 44.4%.

216. Table 7 provides a more complete range of projections of what the minimum wage bite would be

under different combinations of growth rates in the NMW and AWOTE in 2016.


Table 7: Minimum wage bite under different combinations of NMW/AWOTE growth in 2016AWOTE growth in year to November, per cent

$ NMW

increase

%

NMW

increas

e

1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 4.0

$13.14 2.0 44.0 43.9 43.8 43.7 43.6 43.5 43.4 43.4 42.9

$14.45 2.2 44.0 44.0 43.9 43.8 43.7 43.6 43.5 43.4 43.0

$15.77 2.4 44.1 44.0 44.0 43.9 43.8 43.7 43.6 43.5 43.1

$17.08 2.6 44.2 44.1 44.0 44.0 43.9 43.8 43.7 43.6 43.2

$18.39 2.8 44.3 44.2 44.1 44.0 43.9 43.9 43.8 43.7 43.3

$19.71 3.0 44.4 44.3 44.2 44.1 44.0 43.9 43.9 43.8 43.4

$21.02 3.2 44.5 44.4 44.3 44.2 44.1 44.0 43.9 43.9 43.4

$22.33 3.4 44.6 44.5 44.4 44.3 44.2 44.1 44.0 43.9 43.5

$23.65 3.6 44.6 44.6 44.5 44.4 44.3 44.2 44.1 44.0 43.6

$24.96 3.8 44.7 44.6 44.6 44.5 44.4 44.3 44.2 44.1 43.7

$26.28 4.0 44.8 44.7 44.6 44.5 44.5 44.4 44.3 44.2 43.8

$27.59 4.2 44.9 44.8 44.7 44.6 44.5 44.5 44.4 44.3 43.9

$28.90 4.4 45.0 44.9 44.8 44.7 44.6 44.5 44.5 44.4 43.9

$30.00 4.6 45.1 45.0 44.9 44.8 44.7 44.6 44.5 44.4 44.0

217. Awarding our claim in full is necessary to begin to improve low-paid workers’ relative living

standards. The size of the improvement would be modest, but important.

Reversing the decline in relative living standards

218. Minimum wages have fallen sharply as a proportion of average full-time earnings in the past

few decades. While Average Weekly Ordinary Time Earnings (AWOTE) for adults have risen more

slowly than GDP, by 34% between 1997 and 2015, the minimum wage (NMW) has risen by only

13% over the eighteen years, as shown in the next figure. 86 By contrast real GDP has risen 85%

over the same period, more than twice as much as AWOTE and more than six times as much as

the NMW.87 Both the NMW and AWOTE have seriously lagged behind GDP in terms of growth over

decades, much more so in the case of the NMW. There has been a substantial decline in the

relative living standards of low paid workers over decades.

86 ABS 6302 and Bray, J Rob, 2013 Reflections on the evolution of the minimum wage in Australia: options for the future, paper commissioned bythe Crawford School of Public Policy, ANU, ABS 5206 seasonally adjusted, and ACTU calculations.87 ABS 5604.


219. After trending slowly upward over a long period, real AWOTE has stopped increasing recently.

AWOTE has not increased in real terms between August 2013 and November 2015, basically

hovering around $1505 in real dollars of November 2015. The real NMW has increased a bare

$3 in real terms to $657 dollars over the same period. This is highlighted particularly because the

rate of inflation has been low for some years now, 1.7% over the year 2015.

Figure 44: Average weekly ordinary time earnings and the minimum wage, 1997 to 2015, real 2015dollars

Source: Average full-time earnings is AWOTE from ABS 6302. NMW All series deflated by the CPI (ABS 6401). ACTUcalculations.

220. The NMW was 51.6% of the average weekly ordinary time earnings (AWOTE) of full-time adults

in 1997. This has fallen overall to 43.8% at November 2015. The slight increase in the minimum

wage bite since 2013 is mainly because real AWOTE has not increased above its previous high

point at August 2013, while the NMW has increased a bare $3 overall in real terms to $659

dollars over the same period to November 2015. This is highlighted particularly because the rate

of inflation has been low for some years now, 1.7% over the year 2015. In other words the

nominal increases were particularly small.

0

200

400

600

800

1000

1200

1400

1600

May

199

7No

v 19

97M

ay 1

998

Nov

1998

May

199

9No

v 19

99M

ay 2

000

Nov

2000

May

200

1No

v 20

01M

ay 2

002

Nov

2002

May

200

3No

v 20

03M

ay 2

004

Nov

2004

May

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5No

v 20

05M

ay 2

006

Nov

2006

May

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7No

v 20

07M

ay 2

008

Nov

2008

May

200

9No

v 20

09M

ay 2

010

Nov

2010

May

201

1No

v 20

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ay 2

012

Nov

2012

May

201

3No

v 20

13M

ay 2

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Nov

2014

May

201

5No

v 20

15

Real

dol

lars

, Nov

embe

r 201

5=10

0

real NMW real AWOTE

November 2015 real AWOTEis 34% higher than 18 years earlier

November 2015 real NMWis 13% higher than 18 years earlier


Figure 45: Minimum wage bite (ration of the NMW to average full time earnings), 1997 to 2015

Sources: Average full-time earnings is AWOTE from ABS 6302. NMW All series deflated by the CPI (ABS 6401). ACTUcalculations.

221. The increases awarded by the Panel in the past three Reviews have not been sufficient to

reverse the decline in relative living standards. This is shown in Table 8. As above, the minimum

wage bite has flattened out because AWOTE increased so slowly in nominal terms with such low

rates of inflation that it has not changed in real terms.

Table 8: Minimum wage bite in selected years since 1997Nominal

NMW/C14 rateNominal AWOTE

Real NMW/C14rate

Real AWOTEMinimum wagebite (NMW as %

of AWOTE)

Dec-97 $359.40 $710.50 $584.97 $1,156.43 50.6%8Dec-00 $400.40 $798.40 $595.38 $1,187.20 50.2%Dec-05 $484.40 $1,012.70 $629.60 $1,316.27 47.8%Dec-09 $543.78 $1,227.90 $628.42 $1,419.02 44.3%Dec-10 $569.90 $1,276.30 $640.18 $1,433.69 44.7%Dec-11 $589.28 $1,331.10 $640.08 $1,445.80 44.3%Dec-12 $606.40 $1,396.00 $645.71 $1,486.51 43.4%Dec-13 $622.20 $1,437.00 $648.52 $1,497.80 43.3%Dec-14 $640.90 $1,477.00 $652.95 $1,505.04 43.4%Dec-15 $656.90 $1,500.10 $659.33 $1,505.66 43.8%

Source: NMW from Bray (2013). AWOTE from ABS 6302. CPI from ABS 6401, re based to November 2015. Real wages andminimum wage bite are ACTU calculations.

40.0

42.5

45.0

47.5

50.0

52.5

May

199

7No

v 19

97M

ay 1

998

Nov

1998

May

199

9No

v 19

99M

ay 2

000

Nov

2000

May

200

1No

v 20

01M

ay 2

002

Nov

2002

May

200

3No

v 20

03M

ay 2

004

Nov

2004

May

200

5No

v 20

05M

ay 2

006

Nov

2006

May

200

7No

v 20

07M

ay 2

008

Nov

2008

May

200

9No

v 20

09M

ay 2

010

Nov

2010

May

201

1No

v 20

11M

ay 2

012

Nov

2012

May

201

3No

v 20

13M

ay 2

014

Nov

2014

May

201

5No

v 20

15

Per c

ent

minimum wage, per cent of AWOTE


222. The Panel’s decisions in 2013, 2014 and 2015 stopped the erosion of the minimum wage. The

gap between low paid workers’ living standards and those of other workers is large and had been

growing for more than two decades, as shown above. Without the Panel stopping the decline in

the minimum wage bite, we soon would have reached the level of other OECD countries with

higher levels of earnings inequality and higher prevalence of low pay.

223. However, while the minimum wage bite has not fallen further in the past three years, it remains

close to its lowest level on record, even with slow growth in the average wage which is keeping

the bite up. The minimum wage bite is still over one percentage point lower than it was five years

ago at the end of 2010. It is half a percentage point lower than it was at the end of 2009, after

the AFPC decided not to increase minimum wages. It is 4.0 percentage points lower than in

2005 and 6.4 points below its 2000 level. The gap in living standards between workers reliant on

minimum wages and other workers is very close to as high as it has been.

224. Minimum wages are substantially lower than they would be if the minimum wage bite had been

held constant from some earlier time. Table 9 shows the difference between the current NMW

and the value it would have taken if the minimum wage bite had been preserved from earlier

periods. For example, if the minimum wage bite had remained at 47.8%, as in 2005, then the

NMW would now be $715.05 per week rather than $656.90 per week, a difference of $60.15. If

the minimum wage bite had been preserved at its 2010 level of 44.7% then the NMW would be

$13.64 higher than it is today. The effect of the slow growth in the average wage can be seen on

the relativities of the minimum wage to the average wage in the last three years. It is not that the

relative living standards of the low paid have improved, it is that the living standards of those on

average wages have not improved much.

Table 9: The effect of the falling minimum wage bite

If the minimum wage bitewas still as it was in

Then the NMW would be Instead of A weekly difference of

Dec-97 $758.81 $656.90 $101.91Dec-00 $753.05 $656.90 $96.15Dec-05 $717.05 $656.90 $60.15Dec-09 $664.54 $656.90 $7.64Dec-10 $670.54 $656.90 $13.64Dec-11 $664.54 $656.90 $7.64Dec-12 $651.04 $656.90 -$5.86Dec-13 $649.54 $656.90 -$7.36Dec-14 $651.04 $656.90 -$5.86

Source: NMW from Bray (2013). AWOTE from ABS 6302, ACTU calculations of wage bite.


225. Our proposed increase in minimum wages is intended to improve the minimum wage bite, and

contribute to recovering and improving the relative living standards of low paid workers.

226. It should not be the case that minimum wages adjustments result in either a falling, or roughly

stable, minimum wage bite. In our view, the living standards of low paid workers are too low

relative to other workers. Current minimum wage levels, in our view, provide neither a fair nor

relevant safety net. The increase we propose would begin to reverse the erosion of relative living

standards and restore fairness. This also has the advantage of arresting the drag on growth

resulting from increased inequality.

Relative earnings in the more award-reliant industries

227. Average and median earnings for Australian workers have grown significantly faster than the

NMW and award minimum wages over the past decade. This divergence is not just due to rapid

wages growth in the mining industry and other high-growth sectors.

228. Figure 46 shows that the NMW fell relative to average full-time earnings in all industries except

three out of the eighteen over the decade to November 2015. The three industries where the

minimum wage bite improved were Administrative and Support Services, Rental hiring and real

estate and Other services, each by less than two and half percentage points.

229. Minimum wages have failed to keep pace with average earnings in the more award-reliant

industries, such as Retail Trade and Accommodation and Food Services. Over the past decade,

the ratio of the NMW to average full-time earnings in the Accommodation and Food Services

industry fell by 4.3 percentage points, while in Retail Trade it fell 3.7 percentage points.


Figure 46: Change in minimum wage bite between November 2005 and November 2015

Sources: NMW from Bray (2013). AWOTE from ABS 6302, ACTU calculations

230. Where the NMW has been closer to keeping pace with average wages, it may be due to the slow

growth in wages in the particular sector as shown in Figure 47. The three industries with positive

change in the minimum wage bite have very low or zero growth in real average wages over the

ten years to November 2015. One of these is one of the four most award reliant, Administrative

and support services.

-6.60-5.80

-4.95-4.76

-3.58-3.35-3.25-3.20-3.10-3.01-2.96

-2.26-1.75-1.65-1.61

-0.781.37

2.162.31

-8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00

MiningConstructionTransport, Postal and WarehousingAccommodation and Food ServicesPublic Administration and SafetyAll IndustriesProfessional, Scientific and Technical ServicesHealth Care and Social AssistanceElectricity, Gas, Water and Waste ServicesInformation Media and TelecommunicationsEducation and TrainingRetail TradeFinancial and Insurance ServicesArts and Recreation ServicesWholesale TradeManufacturingOther ServicesRental, Hiring and Real Estate ServicesAdministrative and Support Services

Percentage points


Figure 47: Change in minimum wage bite between November 2005 and November 2015, percentagepoints, and 10 year total growth in industry real AWOTE. %

Sources: NMW from Bray (2013). AWOTE from ABS 6302, cpi from ABS 6401, ACTU calculations

231. It is also clear that in Retail Trade and Accommodation and Food Services industries, the two

largest employers of workers reliant on minimum wages, the gap has still grown between

minimum wage workers and other workers. This is the case even in industries in which the low-

paid are typically employed. The exception is Administrative and support services where real

AWOTE has grown 0.1% over the last ten years, and fallen 7.6% in the three years since

November 2012, resulting in the wage bite moving up over that period.

-6.6

-5.8

-5.0

-4.8

-3.6

-3.3

-3.3

-3.2

-3.1

-3.0

-3.0

-2.3

-1.7

-1.7

-1.6

-0.8

1.4

2.2

2.3

41.8

26.3

23.3

17.0

18.3

17.0

18.2

16.1

18.1

17.2

16.0

11.6

12.8

10.9

11.1

8.6

2.9

0.2

0.1

-10 -5 0 5 10 15 20 25 30 35 40 45

Mining

Construction

Transport, Postal and Warehousing

Accommodation and Food Services

Public Administration and Safety

All Industries

Professional, Scientific and Technical Services

Health Care and Social Assistance

Electricity, Gas, Water and Waste Services

Information Media and Telecommunications

Education and Training

Retail Trade

Financial and Insurance Services

Arts and Recreation Services

Wholesale Trade

Manufacturing

Other Services

Rental, Hiring and Real Estate Services

Administrative and Support Services

Per centgrowth in real average adult FT earnings, % change in minimum wage bite, percentage points


Figure 48: Real average weekly ordinary time earnings and NMW, May 1997 to November 2015


Figure 49: NMW as a percentage of average earnings, May 1997 to November 2015


0

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-199

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v-20

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ay-2

008

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-200

9No

v-20

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ay-2

010

Nov-

2010

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-201

1No

v-20

11M

ay-2

012

Nov-

2012

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-201

3No

v-20

13M

ay-2

014

Nov-

2014

May

-201

5No

v-20

15

Real

dol

lars

Retail Trade Accommodation and Food Services

Administrative and Support Services Health Care and Social Assistance

All Industries NMW

40

45

50

55

60

65

70

May

-199

7No

v-19

97M

ay-1

998

Nov-

1998

May

-199

9No

v-19

99M

ay-2

000

Nov-

2000

May

-200

1No

v-20

01M

ay-2

002

Nov-

2002

May

-200

3No

v-20

03M

ay-2

004

Nov-

2004

May

-200

5No

v-20

05M

ay-2

006

Nov-

2006

May

-200

7No

v-20

07M

ay-2

008

Nov-

2008

May

-200

9No

v-20

09M

ay-2

010

Nov-

2010

May

-201

1No

v-20

11M

ay-2

012

Nov-

2012

May

-201

3No

v-20

13M

ay-2

014

Nov-

2014

May

-201

5No

v-20

15

Per c

ent


Administrative and Support Services Health Care and Social Assistance

All Industries


232. It can be observed that real average wages have grown so slowly in the past few years that they

are keeping the minimum wage bite level or even increasing it. However there is not a consistent

pattern even across the award reliant industries. Where a slight increase in minimum wage bite

has occurred, it cannot be argued to result in an improvement in relative living standards that

would justify a smaller increase in the minimum wage. On the contrary it is a reflection of slides

in relative living standards so great that it has impacted even on average wages, despite low

inflation. In particular, the slide in real average wages has been in large employing, award reliant

areas. This itself reflects the impact of the slow growth in the minimum wage in those award

reliant areas. It also shows up in the widening gap between the average wages in those award

reliant areas and other industry areas as shown in Figure 48. This constitutes little or no

improvement of overall living standards in the more award reliant industries in absolute terms,

and a worsening relative to the rest.

233. Awarding our claim in this Review would work to reverse the slow growth in minimum wages

and the trend fall in the relative living standards of low paid workers, including other workers

within their industries.

Australia’s minimum wage in international context

234. The Panel is required to take into account relative living standards. However, the statute

specifies no particular level of relative living standards that should be deemed satisfactory, or

against what they should be measured. There is nothing to suggest that the minimum wage bite

is the key measure by which to judge relative living standards. As shown in the previous section,

an increase in the minimum wage bite may in fact be the outcome of slower growth in average

wages. This shows why it is important to obtain other measures of relative living standards. The

minimum wage bites of other developed countries are also pertinent to relative living standards.

235. The Panel has expressed reservations about the relevance of international comparisons in

previous Reviews. In its 2015 decision, the Panel restated that “it remains our view that data

about the Australian minimum wage bite relative to other OECD countries is of limited

significance in evaluating the relative living standards supported by award wages.”88

236. We acknowledge the Panel’s view regarding the relevance of international comparisons of

minimum wages. We nevertheless respectfully submit that such comparisons do provide some

relevant information for adjusting the Australian safety net.

88 [2015] FWCFB, [361]


237. A falling minimum wage bite is very far from a necessary and inevitable consequence of

globalisation and/or technological change. On the contrary as increasingly recognised in the

literature, an increase in the minimum wage should encourage economic growth through its role

in reducing inequality. A comparison of minimum wage bites across the OECD shows there is

nothing inevitable about the level of the real minimum wage or the size of the bite. Relatively few

OECD countries experienced a falling minimum wage bite over the past ten years (as shown in

Table 10). Only Ireland’s mean wage bite was bigger than Australia’s, and Ireland suffered badly

in the GFC. This suggests that there is nothing inevitable or necessary about a falling minimum

wage bite.

238. A comparison of minimum wage bites across countries can also shed some light on the possible

consequences of allowing Australia’s bite to fall further. There is an inverse cross-country

correlation between a country’s minimum wage bite and its level of earnings inequality, as

measured by the 50:10 ratio in wages. There is also a correlation between the minimum wage

bite and the incidence of low pay, with countries that have lower minimum wage bites tending to

have a greater share of their employees in low-paid work. Of course, many factors other than

minimum wages can affect the level of inequality and the prevalence of low pay. Nevertheless, we

submit that if Australia’s minimum wage bite were to be allowed to continue to fall, then higher

inequality and more prevalent low pay would likely result. International comparisons can be a

useful cautionary guide.

239. In 2014, the Australian NMW was 43.1% of average earnings. Six countries had higher or equal

wage bites.89 While Australia’s minimum wage bite is higher than those of most OECD countries, it

has fallen dramatically.

240. Table 10 compares the minimum wage bite in OECD countries. The minimum wage bite is

shown both as the minimum wage as a proportion of the average (mean) wage, and the minimum

wage as a proportion of the median wage. The table also compares the real level of the minimum

wage across OECD countries, converted to US dollars at Purchasing Power Parity (PPP). The table

then shows the total change over the past ten years of the minimum wage bite (measured both

ways) and the real minimum wage in PPP terms.

89 In some years, the OECD figures differ slightly from those obtained by dividing the C14/NMW rate by AWOTE from ABS 6302.The difference is never greater than a percentage point. The ACTU has used the OECD figures for international comparisons toensure comparability.


Table 10: Minimum wages in OECD countriesLevel in 2014 Change: 2004 to 2014

Minimumwage bite

againstmean, %

Minimumwage bite

againstmedian, %

Minimumwage, real$US ppp

Bite(mean) -

percentagepoints

Bite (median)- percentage

points

Real level (USDPPP) - per cent

Australia 43.1 53.3 10.19 -7.2 -5.1 4.3

Belgium 43.1 50.5 10.12 -0.7 -0.3 2.4

Canada 40.4 45.1 8.05 4.5 5.7 23.0Chile 45.0 67.6 2.95 na na 29.8

Czech Republic 31.5 36.8 3.42 -1.1 -1.0 1.1Estonia 34.8 41.5 3.31 1.1 -0.3 52.0

France 49.5 61.1 9.46 1.2 1.8 11.2

Greece 38.6 46.1 5.48 0.9 -0.4 -14.1

Hungary 40.2 53.6 4.03 4.2 5.4 27.6

Ireland 37.0 43.1 8.65 -7.5 -9.5 7.7Israel 41.2 56.3 5.45 0.3 1.3 4.1

Japan 33.8 38.9 6.90 4.2 5.3 13.3

Korea 35.7 45.8 6.18 7.5 10.5 41.4

Luxembourg 47.6 56.6 11.26 1.9 4.0 9.7

Mexico 28.7 37.5 0.90 -1.2 na 0.9

Netherlands 41.9 47.7 10.33 -1.1 -1.1 -1.1

New Zealand 50.8 59.6 8.80 3.9 6.2 24.9

Poland 40.1 50.2 5.07 5.3 7.0 58.9

Portugal 39.5 57.5 4.93 3.0 5.5 12.9

Slovak Republic 37.5 47.5 3.66 2.5 3.3 32.8Slovenia 49.4 60.9 6.81 na na 31.9

Spain 34.7 41.4 5.75 1.4 -0.1 9.1

Turkey 37.4 67.7 4.47 -2.3 -7.2 14.1

United Kingdom 39.8 48.0 7.93 4.2 4.9 6.1

United States 26.6 36.7 7.25 1.6 4.4 12.3Source: OECD Stat. Available from http://stats.oecd.org/Index.aspx?DataSetCode=RMW andhttp://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE. Rates of change are ACTU calculations.

241. The minimum wage bite (as a proportion of the mean) in Australia fell 7.2 percentage points

between 2004 and 2014, from 50.3% to 43.1%. Only Ireland, whose economy and wages

suffered catastrophically in the GFC had a larger decline. Most OECD countries experienced an

increase in their minimum wage bites over this decade, and many of these were recovering from

the GFC. Australia’s economy did not suffer as badly as most in the GFC, yet its minimum wage

bite has fallen more than all except Ireland. Ireland and Turkey were the only countries with

higher falls in the median wage bite.

http://stats.oecd.org/Index.aspx?DataSetCode=RMW

http://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE


Figure 50: Minimum wage bite against mean in 2014 in OECD countries, per cent

Source: OECD Stat. Available from http://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE.

26.628.7

31.533.8

34.734.8

35.737.037.437.5

38.639.539.840.140.240.4

41.241.9

43.143.1

45.047.6

49.449.5

50.8

0.0 10.0 20.0 30.0 40.0 50.0 60.0

United StatesMexico

Czech RepublicJapanSpain

EstoniaKorea

IrelandTurkey

Slovak RepublicGreece

PortugalUnited Kingdom

PolandHungaryCanada

IsraelNetherlands

AustraliaBelgium

ChileLuxembourg

SloveniaFrance

New Zealand

Per cent

http://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE


Figure 51: Change in minimum wage bite of mean income, 2004 to 2014

Source: ACTU calculations based on OECD Stat data.

242. Australia’s minimum wage bite was, for a long time, the highest in the OECD, as indicated in the

ACTU submission to last year’s AWR90. It has been allowed to fall for several decades, at the

same time that the minimum wage bites in most OECD countries have risen. The result is that

Australia is drifting towards the middle of the range of minimum wage bites for OECD countries.

This is the case for both mean and median based wage bites.

243. Australia’s minimum wage bite remains above those of many other countries including the UK

and Canada, but the gap has been rapidly closing. This is because Australia’s minimum wage

growth has lagged while other countries are instituting increases in their minimum wages. This is

despite more rapid growth in average wages in the countries recovering from the GFC. Recently

average wages in Australia have grown even more slowly than its minimum wage, flattening out

its wage bite, but its relativity with other OECD countries has still slipped.

244. Rather than being a leader in minimum wages as it has been, the Australian labour market

would come to resemble those of some other OECD countries which have higher levels of

earnings inequality, unless real minimum wage growth is sustained.

90 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, pp.38-40.

-7.5-7.2

-2.3-1.2-1.1-1.1

-0.70.3

0.91.11.21.41.6

1.92.5

3.03.9

4.24.24.2

4.55.3

7.5

-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

IrelandAustralia

TurkeyMexico

Czech RepublicNetherlands

BelgiumIsrael

GreeceEstoniaFrance

SpainUnited StatesLuxembourg

Slovak RepublicPortugal

New ZealandUnited Kingdom

JapanHungaryCanadaPolandKorea

Change in wage bite from 2004 to 2014, in percentage points


245. Moreover the OECD countries have shown an increasing interest in minimum wages.91 Nine

countries out of 34 OECD countries (26.5%) have introduced minimum wages since 1990,

bringing the total with minimum wages to 25. Countries which have introduced minimum wages

since 1990 include Czech Republic, Estonia, Germany, Hungary, Ireland, Poland, Slovakia,

Slovenia and the UK.

246. The impact of the minimum wage on relative living standards depends on the taxes paid and

transfers received at that wage, including income taxes, social security contributions, and in-work

benefits. Taking account of the impact of these on the minimum wage bite in each country

changes the ranking significantly. Australia’s taxes and transfers leaves it with a net minimum

wage bite of 47.7% which is five percentage points lower than its gross minimum wage bite. This

re ranks the minimum wage bite measure enough to leave it just above the OECD average net

minimum wage bite of 44.9%, with only two countries in between (Ireland and Czech Republic).92

247. A number of countries that have lower gross minimum wage bites than Australia (such as Japan

and the UK) have higher net minimum wage bites. Average difference between gross and net

wage bite is 2.1% whereas Australia’s is 5.0%. The gross minimum wage in Australia has to do

relatively more heavy lifting than in the average OECD country to bring up the wage bite after

taxes and transfers.

248. The relative living standards of minimum wage workers in Australia are close to the OECD

average, and below those of many comparable countries. Unlike in most OECD countries, the

relative living standards of Australian minimum wage workers fell during the 2000s.

249. Mavromaras et al (2016) compared the real minimum wage increase from 2003 to 2014

across France, Australia, New Zealand, UK, Canada and the US, see Figure 52 below.93 It found

that the growth in the real minimum wages over that period was by far the lowest in Australia at

5.9%, as shown in the following figure. It was also found that France’s minimum wage had

exceeded Australia’s since 2005. This is despite the greater impact of the GFC on France’s

economy. France and New Zealand also had higher mean and median minimum wage bites than

Australia in 2014.94 Australia’s median minimum wage bite was the only one which had declined

over that period.

91 OECD Garnero, Andrea 2015 Minimum wages across OECD and EU countries presentation 15 Septemberhttp://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwj1m-eIwdXLAhVDp5QKHX2eD3UQFgggMAE&url=http%3A%2F%2Fwww.oecd.org%2Fsocial%2FFocus-on-Minimum-Wages-after-the-crisis-2015.pdf&usg=AFQjCNHS8bK-Q9YTJGJH7McH02swCVzhww92 OECD 2014, Employment Outlook 2014, p.68, update of estimates not available. Data from http://dx.doi.org/10.1787/888933132146. TheOECD’s calculations of net bites are for single adults without dependents.93 Kostas Mavromaras, Peter Sloane and Rong Zhu 2016 Research report 1/2016 An international comparison of minimum wages and labourmarket outcomes, Fair Work Commission Research Commission Report 1/2016, p.1894 Mavromaras et al 2016, pp.18-21

http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwj1m-eIwdXLAhVDp5QKHX2eD3UQFgggMAE&url=http%3A%2F%2Fwww.oecd.org%2Fsocial%2FFocus-on-Minimum-Wages-after-the-crisis-2015.pdf&usg=AFQjCNHS8bK-Q9YTJGJH7McH02swCVzhww



http://dx.doi.org/10.1787/888933132146


Figure 52: Total growth in real minimum wages, 2003 to 2014 (2014 US dollar PPPs)

Source: Mavromaras et al (2016), p.18

Minimum wages and inequality

250. The Panel stated in the AWR for 2014-15 that “the evidence suggests that the forces for rising

inequality have been subdued in the past few years. This reduces the work that needs to be done

by the NMW and modern award minimum rates to protect the relative living standards of the low

paid.”95 We hope to respectfully show in this section that inequality has continued to increase on

trend. The recent apparent improvement in inequality was a specific circumstance related to the

GFC, related to incomes from asset ownership falling at the top end.

251. Earnings inequality has risen in Australia over the past several decades, particularly during the

1990s and 2010s.

252. A key measure of earnings inequality relevant to Annual Wage Reviews is the 50:10 ratio – this

measures the ratio of median earnings to earnings at the 10th percentile of the distribution. The

higher this ratio, the more unequal is the bottom half of the earnings distribution. The 50:10 ratio

among full-time non-managerial adult workers was 1.41 in 1990, then rose to 1.49 in 2000, then

1.57 in 2010 and 1.58 in 2012. The 50:10 ratio did not change between 2012 and 2014,

95 FWC 2015 Annual Wage Review 2014-15 [412]

5.9

10.6

12.5

15.0

22.4

29.7

0.0 5.0 10.0 15.0 20.0 25.0 30.0

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US

UK

France

Canada

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remaining at 1.58.96 The 2014 data is the most recent available for this purpose, and has been

discussed fully in the ACTU submission to the previous AWR.97

253. Figure 53 and Figure 54 below show the earnings of full-time workers at the 90th, 50th (median),

and 10th percentiles, as well as the ratios between these levels of earnings.

Figure 53: Real wages for full-time non managerialadults

Figure 54: Measures of earnings inequalityamong full-time non-managerial adult employees

Source: ABS 6306, various years. Note that the earnings figures from 1975 to 2012 (inclusive) pertain to full-time non-managerial adult employees. The 2014 figures are for full-time non-managerial employees paid at the adult rate.

254. Earnings inequality based on the 50:10 ratio remained at a record high level, but it did not rise

from 2012 to 2014. This is partly because average wages grew so slowly, which in turn led the

minimum wage bite to flatten. The prevailing inequality which has worsened over recent decades

still deserves to be ameliorated through increasing the minimum wage.

255. The correlation between a lower minimum wage bite and higher 50:10 earnings inequality also

holds across OECD countries.98 This is convincing because the institutional and economic

environment varies widely amongst countries and the minimum wages and average wages are

established basically independently in each country. It is clear that a smaller minimum wage bite

is associated with greater earnings inequality.

256. It is important to note that inequality of equivalised disposable household income remains high

by historical standards, high by the standards of other OECD countries, and has risen particularly

among the groups most relevant to Annual Wage Reviews.

257. Based on the Gini coefficient, equivalised household disposable income is less equally

distributed in 2013-14 than 20 years earlier. This displays the continuation of a widely

96 The figure for 2014 pertains to full-time non-managerial employees paid at the adult rate, rather than full-time non-managerial adult employees.97 : ABS 6306, ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, pp.42-43.98 OECD stat and ACTU calculations, ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, pp.43-44.

10thpercentile

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recognised trend common across countries. Because of the way the Gini coefficient is calculated,

it puts a relatively high weighting in importance on the middle sector of the income distribution

relative to either end of the income distribution. That is it is less sensitive to changes in the

spread between the lower and upper ends than it is to changes in the middle parts of the

distribution. It tends to display cyclicality as income shifts around the income distribution over

time.

258. The Gini coefficient in 1994-96 was 0.302, rising to 0.333 by 2013-14.99 The Gini coefficient

fell a little over the GFC period and after, between 2007-08 and 2011-12, before rising in the

most recent data of 2013-14 almost back to the level of 2007-08 (0.336). Equivalised household

disposable incomes remain more unequal in 2013-14 than at any time prior to 2007-08 for

which data is available. Based on the Gini coefficient for equivalized household disposable

income on trend, it is a furphy to argue that income distribution has become more equal.

Figure 55: Gini coefficient, a measure of inequality where higher is more unequal, for equivalizedhousehold disposable income distribution in Australia 1994-95 to 2013-14

Source: ABS 6523. Equivalized disposable household income standardizes as if a household’s after tax and transfers incomewere that of a single individual.

259. The increase in the base rate of pensions (including the Age Pension and Disability Support

Pension) contributed to the decline in inequality in the post-GFC period. A fall in incomes from

assets (such as dividends) also contributed. Both of these factors are unrelated to the labour

market and working people. We cannot expect taxes and transfers to perform the role of

reducing inequality which is best served by an increase in the minimum wage.

99 The Gini coefficient is a measure of inequality that takes the value 0 when income is distributed equally among all members ofthe population and the value 1 when one member of the population receives 100% of the income. A higher value of thecoefficient indicates a higher level of inequality.

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260. The increase in income inequality over the past decade is even more apparent if lone person

working-age households are examined. It is the living standards of these households that the

Panel has indicated are most relevant to Annual Wage Reviews. Inequality has also grown sharply

among households for which the main source of household income is wages and salaries. This is

shown in Table 11.

261. Inequality in disposable incomes among lone person households aged 25-44 rose by 16.5%

between 2003-04 and 2013-14. For lone person households aged 45-64, inequality rose by

18.1%. For households (of all ages and family types) in which the main source of income was

wages and salaries, inequality rose by 15.9%.

Table 11: Inequality of equivalised disposable household incomes (Gini coefficient) for particularhousehold types

2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 Change: 03-04to 13-14, %

Lone person aged 15-24 0.312 0.304 0.247 0.273 0.325 0.371 18.9

Lone person aged 25-44 0.285 0.293 0.311 0.325 0.324 0.332 16.5

Lone person aged 45-64 0.354 0.42 0.439 0.42 0.401 0.418 18.1

All household types, allages - main source ofhousehold income iswages and salaries

0.232 0.24 0.27 0.264 0.258 0.269 15.9

Total 0.306 0.314 0.336 0.329 0.320 0.333 8.8Source: ABS 6523, 2013-14. Change over time is an ACTU calculation.

262. To the extent that levels of inequality can be compared over time100, inequality has increased

again by 2013-14 after a slight fall in the post-GFC period. This was particularly the case for

households that are more directly relevant to the Annual Wage Review, notably lone person

households of working age and households for which the main source of income is wages and

salaries.

263. Associate Professor Roger Wilkins of the Melbourne Institute carefully examined the evidence

on inequality in Australia. He concluded among other things, that ‘changes to income taxes and

to government benefits acted to increase income inequality over the decade.’101

264. Both HILDA and the ABS data show that inequality was higher in 2011 than at any point in the

2000s prior to 2007. The ABS data shows that inequality has risen particularly among lone

person households and working households.

100 Caution should be exercised when comparing Gini coefficients over time, particularly prior to 2003-04, due to changes to theABS definition of ‘income’ and to its survey method. The ABS has improved its methodology over time and harmonised itsdefinition of income with the international standard. This means that the recent estimates of the Gini coefficient are more likelyto be accurate than earlier estimates.101 Wilkins, R. 2013, ‘Evaluating the Evidence on Income Inequality in Australia in the 2000s’, Working Paper No. 26/13,Melbourne Institute Working Paper Series, Melbourne Institute, University of Melbourne, Melbourne, p.55. Available from:https://www.melbourneinstitute.com/downloads/working_paper_series/wp2013n26.pdf [Accessed 25 March 2015].

https://www.melbourneinstitute.com/downloads/working_paper_series/wp2013n26.pdf


265. The Senate Community Affairs References Committee in its report of December 2014 into

Bridging our growing divide: inequality in Australia The extent of income inequality in Australia

found that

“The minimum wage remains an important mechanism for low income people to avoid poverty

and participate in society. The evidence shows that the minimum wage makes a significant

difference to income inequality and rates of poverty. It is important that the minimum wage is

set at a level that reflects the rising cost of living in Australia.”102

It reported that the “compensation package for an ASX 200 CEO is 145 times that of a worker on

the minimum wage”103

266. Rising inequality is a matter of serious concern. The Panel is required to take relative living

standards into account, for good reason. A declining minimum wage bite exacerbates earnings

inequality and is associated with higher incidence of low pay. If other things are equal, higher

inequality of earnings among workers generally translates into higher inequality of incomes

among households.

267. Higher inequality is a significant concern in and of itself. The maintenance of a fair safety net

that takes into account relative living standards is not consistent with high and rising levels of

inequality. Higher inequality is also undesirable for the potential effect it may have on health,

social cohesion, and the economy. There is also a growing consensus that inequality can be

harmful to economic growth. The research evidence that inequality has a negative impact on

growth is mounting, including in more studies from the IMF 104 and the OECD.105

268. Awarding our claim in this Review will help improve the earnings distribution. It will put

downward pressure on earnings inequality and income inequality, particularly among working

households. This is a social and economic imperative.

The needs of the low paid

269. Among other considerations, the Panel is required to take into account the needs of the low

paid.

102 Senate Community Affairs References Committee 2014 Bridging our growing divide: inequality in Australia The extent of income inequality inAustralia, December, p.xvii.103 The Senate Report 2014 Bridging our growing divide at p.4 took the figure for CEO pay from the most recentAustralian Council of Superannuation Investors Survey. 'CEO Pay in ASX 200 Companies', 13th Annual ACSI Surveyof Chief Executive Remuneration, September 2014, p. 24.104 Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Frantisek Ricka, Evridiki Tsounta, 2015, Causes andConsequences of Income Inequality: A Global Perspective IMF Staff Discussion Note, Junehttps://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf105 OECD 2015 In It Together: Why Less Inequality Benefits All, May 21, http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm

https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf




270. In 2015, the Panel awarded 2.5% increase in minimum wages. Over the year to December

2015, CPI inflation was 1.7%, while the employee Living Cost Index (LCI) increased by 1.1%.106

The increase in minimum wages awarded by the Panel therefore resulted in a modest increase in

real wages for low paid workers. Such workers are more able to meet their needs than they were

prior to the Panel’s 2014 decision, a fact that we welcome.

271. The Reserve Bank of Australia (RBA) forecasts CPI inflation of 2-3 per cent over the year to the

December 2016 quarter.107 Taking the midpoint of this range, nominal wages growth of at least

2.5% would thus be needed in order to prevent a fall in real wages.

272. According to these measures of inflation, the ability of low paid workers to meet their needs

improved slightly last year. However, this improvement does not mean that low paid workers are

able to meet their needs satisfactorily. The extent to which they are able to meet their needs is

difficult to measure directly, but can be inferred from information such as poverty rates and

measures of financial stress and deprivation.

273. We agree with the Panel’s conclusion regarding poverty lines in the 2014-15 Review:

Poverty entails an inability to buy the material resources required to meet basic needs.We accept that if the low paid are forced to live in poverty then their needs are notbeing met and that those in full-time employment can reasonably expect a standard ofliving that exceeds poverty levels.108

274. Obtaining an income in excess of poverty levels does not necessarily indicate that low-paid

workers’ needs are being met to a satisfactory extent. Clearing the poverty line is necessary, but

not sufficient, for a fair and relevant safety net of minimum wages.

275. People above the measured poverty line may still experience poverty if the poverty line is

measured relative to median income. When median income grows more slowly or falls then

those who are above the poverty line also fall behind. Financial stress and deprivation measures

are also imperfect measures of the degree to which needs are not being met. The absence of

deprivation among workers (e.g. if workers do not have to go without meals due to lack of money)

does not necessarily indicate that their incomes are sufficient to meet a socially acceptable

standards. These measures are nevertheless useful, when viewed in conjunction with other

information about low-paid workers’ living standards.

276. The 2014 research by academics at the Bankwest Curtin Economics Centre (BCEC) at Curtin

University as indicated in the ACTU submission to last year’s AWR found that 6.4% of single-

106 LCI is ‘concerned with measuring the impact of changes in prices on the out-of-pocket expenses incurred by households to gain access toconsumer goods and services.’ The biggest difference with cpi is that LCI accounts for housing costs in terms of actual cash outlays incurred, andmay better reflect changes in purchasing power at lower income levels.http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/6467.0Explanatory%20Notes1Dec%202015?OpenDocument107 Reserve Bank of Australia 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, p.61.108 FWC 2015 Annual Wage Review 2014-15 [383]

mailto:http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/6467.0Explanatory Notes1Dec 2015?OpenDocument


earner households were in severe poverty, more than twice that for single-earner couples and a

third higher than the overall working population.109 21.5% of single earner, one adult households

are below the 60% of median income poverty line (based on equivalised disposable household

income after housing costs). 13.5% of single earner, one adult households are below the 50% of

median income poverty line and 8.8% are in “significant” poverty, i.e. below the 40% line.110

277. The BCEC found that “…wages in and of themselves do not prevent income poverty entirely. The

high proportion of households that are reliant on wages and salaries as their main source of

income across the poverty depth groups indicates the existence of a ‘working poor’ sub-

population.”111 Single person households in poverty are more likely than couple households to

experience forms of deprivation such as going without meals.112

278. We note that the Panel concluded in its decision in the 2013-14 Review that “the appropriate

reference household for the purposes of setting minimum wages is the single person household,

rather than the couple household with children.”113 If this is the case, the BCEC report’s findings

about the extent of poverty and deprivation among single person households should be of

significant concern. It shows that there is a substantial minority of workers whose needs are not

being met to an adequate extent.

279. The FWC Statistical Report also contains a range of relevant information about financial stress,

deprivation and hardship. Tables 10.1 and 10.2 of the Statistical Report shows that financial

stress generally increased in 2014 compared with 2013 particularly for the low paid:

a. Among all employee households, 15.8% experienced some form of financial stress up

from 14.9% the previous year, 3.1% experienced moderate stress up from 2.7%, and

0.8% experienced high stress compared with 0.9% the previous year;

b. Among low-paid employee households, 31.8% experienced some form of financial

stress, up from 31.1% the previous year, 8.4% experienced moderate stress up from

7.1% and 1.9% experienced high stress down from 2.1%.

280. Financial stress is much more common among low-paid employees than other employees. The

table also shows that the incidence of financial stress has not fallen for the low paid since 2011

at 31.8%, whereas it has fallen slightly for total employees, from 17.4% in 2011 down to 15.8%

in 2014. This indicates the low paid are in a worse position relative to other employees and

inequality is widening.

109 Cassells, R., Dockery, M. and Duncan, A. 2014, ‘Falling Through the Cracks: Poverty and Disadvantage in Australia’, Focus onthe States Report Series, No. 1, October, Bankwest Curtin Economics Centre, Curtin University, Perth [BCEC], p.6.110 BCEC, p.33.111 BCEC, p.7.112 BCEC, p.44.113 FWC 2015 Annual Wage Review 2014-15 [337]


281. Table 10.3 of the Statistical Report shows that 18.5% of low-paid adult employees would have

been unable to raise $2000 in a week for something important in 2014. This has increased from

the 16.8% in 2002, but down slightly from the 19.1% in 2010 just after the GFC. This compares

to 10.2% of all adult employees, again up from 2002 but down slightly from 2010 after the GFC.

19.4% of low-paid adult employees couldn’t pay electricity, gas, or telephone bills on time, which

has also risen over time.

282. Table 10.4 of the Statistical Report shows that deprivation among households with low-paid

adult employees is high and has risen over time, also reported in the ACTU submission to the

AWR for 2014-15. At 2009-10 38.4% of households with only low-paid adult employees could not

afford a holiday for at least one week a year (up from 33.7% in 2003-04). 31.5% of low-paid

worker households could not afford a night out once a fortnight (up from 24.8% in 2003-04).

10.9% of low-paid worker households could not afford friends or family over for a meal once a

month (up from 5.6% in 2003-04). 19.6% of low-paid worker households could not afford leisure

or hobby activities (up from 11.1% in 2003-04).

283. The increase we propose in this Review would increase real wages, and thus improve the ability

of low paid workers to meet their needs. It would ensure that low paid workers enjoy some

benefits from rising productivity growth, after a long period in which productivity has risen much

faster than real minimum wages.

Securing a fair share of productivity growth

284. Low paid workers should share in the benefits of productivity growth. This has not occurred over

the past decade, with the real NMW lagging behind productivity growth at the total economy level

and in the more award-reliant industries. The labour share of income has fallen, both at the total

economy level and in the more award-reliant industries. We submit that the restrained growth in

real minimum wages has played a part in this fall in the labour share. It has only flattened out

recently due to the fall in resource related asset income at the top.

285. Submissions to previous Reviews by some employer organisations and state governments have

suggested that real wage maintenance would be a sufficient outcome that would satisfy the

criteria the Panel must take into account. We disagree, as did the Panel in its 2014-15, in which

it said “the requirement to take into account relative living standards and the needs of the low

paid supports an increase in the NMW and modern award minimum wages.”114 The maintenance

of real wages is necessary, but not sufficient, to maintain a fair and relevant safety net.

286. Merely maintaining real wages would deny low-paid workers the benefits of productivity growth,

and would see their earnings and living standards decline relative to those of other workers. This

is not consistent with the minimum wages and modern awards objectives of the Act.



287. We reject mere real wage maintenance as inconsistent with the minimum wages and modern

award objectives. We do not propose an alternative mechanistic ‘rule’ for minimum wages

adjustment, such as increasing minimum wages by inflation plus productivity growth. The factors

that the Panel must take into account are too broad and varied, and require too much judgement,

for a rule to be used to guide the Panel’s decision making process in Annual Wage Reviews. We

also advocate a medium-term approach that does not give undue emphasis to short-term

fluctuations in inflation, productivity growth, or other factors.

288. While we do not advocate a predetermined rule for minimum wages adjustment, we strongly

submit that low paid workers should share in the benefits of productivity growth. This entails

minimum wages increasing in real terms over time. If average real wages are rising roughly at the

same pace as productivity growth, preserving relative living standards would require real

minimum wages to rise in line with labour productivity. Restoring some of the lost ground in

relative living standards would require some increase in real minimum wages in excess of labour

productivity growth.

289. In 2015, the Panel’s decision to increase nominal minimum wages by 2.5% reduced the share

in productivity growth to low paid workers from that of the previous year when 3% was awarded.

The real NMW rose by 1.2% deflated by cpi. This came after many years in which labour

productivity rose much faster than real wages for low paid workers. The increase in minimum

wages we propose in this review would ensure that some of this lost ground is restored.

290. Figure 56 shows various index measures of annual labour productivity increase, real labour

costs and the real minimum wage. It is clear that the real NMW has increased much more slowly

than labour productivity.


Figure 56: Various index measures of labour productivity, real labour cost and the minimum wage,1995 to 2015

Sources: ABS 5204, 6302, 6401, NMW from Bray (2013), and ACTU calculations

291. The real value of the NMW has not kept pace with labour productivity even within the more

award-reliant industries. This is shown in Figure 57. Note that the industry-level productivity

statistics pertain to financial years, the most recent of which is 2014-15 and thus does not cover

the period in which the Panel’s 2015 decision came into effect. ‘GVA’ stands for gross value

added, a measure of output at the industry level. GVA per hour worked measures labour

productivity at the industry level. It can be seen that labour productivity in the Retail trade and

Health and support services industries grew substantially faster than labour productivity across

the total economy in the decade to 2014-15, while labour productivity in the Accommodation and

food services and Administrative and support services industries faster than the total economy

figure up to June 2008 then grew more slowly. All award reliant industries grew substantially

faster over the twenty years to 2015 than the real NMW. Low-paid workers have not shared in the

benefits of productivity growth.

80

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Figure 57: Labour productivity growth in the more award-reliant industries, compared to increases inthe real NMW, indexes

Source: Real GDP per hour worked and industry gross value added per hour worked are from ABS 5204, re-based to equal 100 in1994-95 by the ACTU. NMW from Bray (2013). GDP chain price index from ABS 5204. Real NMW calculated by the ACTU.

292. Based on ABS estimates of labour’s share of income for its productivity estimates, labour’s

share in the total economy has fallen on trend since 2001-02, flattening out or rising slightly

since 2011-12 as a result of the impact of the GFC on capital income, rather than due to wage

improvements. Labour’s share in the more award-reliant industries has fallen on trend since

2001-02, even though these are labour intensive industries. The Panel noted this trend in its

decision in the 2013-14 Review, observing that “over the longer term, growth has benefited

capital disproportionately to labour and the labour share of income has declined materially over

the past two decades.”115 The fall in the labour share reflects the failure of average real wages116

(in output price terms) to keep pace with labour productivity growth, labour’s share of income

falls.

293. The long term fall in the labour share in various sectors is shown in Figure 58. In 2014-15, the

labour share in the market sector was 2 percentage points lower than in 2003-04. The labour

share also fell by 2 percentage points in the Accommodation and Food Services industry and by

one percentage point in the Retail Trade industry.

115 [2014] FWCFB 3500, [24]116 Including non-wage compensation such as superannuation contributions.

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Real NMW index GROSS DOMESTIC PRODUCT


Figure 58: Labour’s share of income in the market sector and in the more award-reliant industries

Source: ABS 5260.0.55.002.

294. We submit that restraint in minimum wage increases has played a role in the failure of average

wages growth to keep up with average productivity growth. A broad range of factors, including

technological change and globalisation, asset price movements and increasing firm

concentration have contributed to the trend decline in the labour share. But institutional changes

in the labour market, including the fall in union density and the fall in the relative value of

minimum wages, are likely to have made a major contribution to this undesirable trend.

The relevance of taxes and transfers

295. In its 2014-15 decision, the Panel said “while we pay particular attention to the impact of our

decision on the needs of low-paid single adults, we also note and take into account the combined

effects of changes in minimum wages and the tax-transfer system on the needs of other low-paid

household types, including those with dependent children.”117

296. The ACTU recognises that the Panel has a statutory obligation to establish and maintain a fair

safety net of minimum wages. It is appropriate for it to take taxes and transfers into account

when doing so. However we would submit that the tax and transfer system cannot be relied upon

to alleviate the impact of small increases in the minimum wage.


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297. The increasingly unequal household income post taxes and transfers is shown in Figure 59,

based on the most recent ABS data. Equivalized household disposable (after taxes and transfers)

income is based on standardizing household disposable income across different household

structures so that it is represented by that of a single person household, otherwise the

distribution of household income would be affected by household size and composition. The

quintiles divide the equivalized household income range into fifths, from the fifth of households

with the lowest income through to the fifth with the highest income.

298. Figure 59 below shows that after tax and transfer income has not become more equal over the

last twenty years. Whereas the real disposable income average in each of the middle three

quintiles has each risen by 58% to 60% over the twenty years, the real disposable income of the

top quintile has risen by 80%. The middle three quintiles are those most dependent on wage

income, whereas the top income quintile is more dependent on income from profits. The second

bottom and middle quintiles are more likely to be award reliant based on the income range. The

tax and transfer system has clearly not served to alleviate widening inequality across the income

distribution over time, arising from the slow growth in wage relative to profit income.

Figure 59: Household equivalized disposable income, real, 1994-1995 to 2013-14, constant dollars

Source: ABS 6523. Income standardized as if for a single person household.

299. The ABS also provides data on the distribution of gross and disposable income distribution,

before equalizing the household structure. In this data larger households are more likely to have

higher incomes and so are likely to be more prevalent in the higher quintiles. Figure 60 shows

the difference between gross and disposable incomes for 2013-14. It shows that while there is

0

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rs

1994–95 2013–14


some redistribution through taxes and transfers, in fact this is quite limited. It serves to move the

ratio of top to bottom quintile incomes from 11.5 to 8.6. Even if the top quintile households have

five people in them and the bottom only one, they are left with much higher disposable incomes

than the lower quintiles. The redistribution due to taxes and transfers has also become more

limited over time. It is wage growth, and in particular the minimum wage, which drives income

distribution.

Figure 60: Household gross and disposable income, 2013-14, current dollars

Source: ABS 6523. Income standardized as if for a single person household.

300. The level of wages, and the minimum wage in particular, remains the key driver of standards of

living and address of inequality in any economy. This is recognised in an increasing literature on

the subject. It is an abrogation of responsibility for submissions to call for a reduction in

regulation of wages and then to seek address through the tax and transfer system.

301. In any case the Australian tax and transfer system is increasingly failing to address the widening

distribution of income to which lagging wage growth has contributed. Policy cannot be relied

upon to address this. For instance measures such as an Earned Income Tax Credit (EITC) would in

effect transfer income from lower income wage earners via taxes, towards profits, through

subsidising wages. They are not a substitute for minimum wages. This would not raise the living

standards of low paid workers.

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302. While we accept the Panel’s decision to focus on single person households, we strongly submit

that the Panel should be consistent in its application of this principle. If cuts to transfer payments

affecting families are not to be taken into account, then neither should the benefit that some low-

paid workers receive from living in households with others. To take into account the financial

benefit received by some low-paid workers from living with others, but to ignore the effect of

reduced transfers on such low-paid workers’ living standards, is inconsistent and in our view

unacceptable.

303. We also submit that when examining evidence of financial stress, deprivation and poverty, the

Panel should put most weight on indicators pertaining to single person households. We showed in

a previous section of this submission (at paragraph 276 onwards) that single person households

experience higher levels of stress, deprivation and poverty.

The effect of taxes and transfers on living standards

304. The gap between minimum and average full-time wages is smaller when taxes and transfers are

taken into account, and this has been consistently so historically. The ‘net’ minimum wage bite

has fallen by 8%, nearly as much as the ‘gross’ bite at 9.9%, over the twenty years to 2014.118

The sharp decline in the living standards of minimum wage workers relative to workers on

average full-time earnings is clearly evident whether the comparison is done on a pre-tax or post-

tax basis. The tax system has not offset the decline in relative living standards over a long period.

The effect of the cost of working on living standards

305. The costs of working are typically higher for low-paid workers, as a proportion of their weekly

wage. The costs of childcare related to work are the biggest cost of working for both males and

females, and these are bigger for award reliant males than females, and higher overall for award

reliant employees. The Fair Work Commission’s Australian Workplace Relations Survey asks

employees about the cost of childcare related to work, the results of which are in Table 12.1 of

the FWC Statistical Report and summarised in Table 12, below.

Table 12: The cost of working as a percentage of employee’s own weekly gross wage, per centMale Female Total

Award-reliant employees 16.3% 18.9% 18.3%

Non-award reliant employees 13.3% 21.1% 17.5%

Source: FWC Australian Workplace Relations Survey, as reported in the FWC Statistical Report 2015-16, table 12.1.

306. The current childcare payment means testing regime makes non award reliant female costs

slightly higher than award reliant females. Apart from that, the higher cost of working for low-paid

118 ACTU 2015 Submission to Annual Wage Review 2014-15, 27 March, p.58. ACTU calculations. Minimum wage rates from FWC/AFPC/AIRCdecisions. AWOTE from ABS 6302. Tax rates and thresholds from the ATO.


workers (relative to their incomes) means that the gap in living standards between low-paid

workers and other workers is bigger than it appears based on a comparison of gross wages.


EQUAL REMUNERATION FOR MEN AND WOMEN WORKERS307. The Panel is required to take into account the principle of equal remuneration for work of equal

or comparable value.119 This requires that minimum rates of pay for different occupations and

classifications are the same, where those occupations and classifications perform work that is of

equal value.

308. The Panel should also have regard to gender pay inequity more broadly. There is a large gap

between the earnings of men and women. A fair increase in minimum wages can contribute to

more equal remuneration between workers who are paid minimum rates and those who perform

work of equal value who have the capacity to bargain.

309. Out of the 1.86 million award only workers, 1.071 million (57.5%) are women. Increasing

minimum wages has the mechanical effect of reducing the gender pay gap.

310. The gender pay gap is conventionally measured using the average weekly ordinary time

earnings (AWOTE) of full-time adults. While we view AWOTE as the most appropriate basis for

calculating the gender pay gap, other wage measures can also provide useful information about

the extent and nature of gender pay inequity. Table 13 shows the gender pay gap calculated

using wage measures from data released over the last year by ABS from two different ABS

surveys. Whichever measure is used, women are paid less on average than men.

Table 13: Gender pay gaps using different earnings measuresEarningsmeasure

Weeklyor

hourlyEmployees covered Source and

dateMale

earningsFemale

earningsGenderpay gap

Average ordinarytime earnings Weekly Full-time adults

ABS 6302,November

20151603.6 1324.6 17.4

Average totalearnings Weekly Full-time adults

ABS 6302,November

20151685.3 1342.7 20.3

Average totalearnings Weekly All employees

ABS 6302,November

20151374.8 913.6 33.5

Mean weeklyearnings Weekly Employees in main job ABS 6333,

August 2014 1385 929 32.9

Source: ABS 6302, ABS 6333. GPG is an ACTU calculation. ABS EEBTUM Cat 6310 ceased at August 2013 data, and someseries were released in a new Cat 6333 in December 2015 for August 2014.

311. The gender pay gap based on AWOTE, the conventional measure, was 17.7% as at November

2015. Apart from last year when the gap was 18.8% at November 2014, this is the highest it has

been since it was 17.9% at November 1988, 28 years ago. It has basically risen on trend since

August 2004 when it was 14.7%. It is of significant concern to the ACTU that the gender pay gap

119 Fair Work Act 2009 (C’th), s.284(1)(d)


is at its highest level in nearly three decades. The view is that deregulation has not assisted

relative gender earnings. The minimum wage is imperative to improving gender pay equity.

312. The following figure shows the gender pay gap by comparing the shares of total employment for

full time female employees at each pay range with the shares of total employment for full time

male employees (excluding OMIEs) at the corresponding pay range. For the lower pay ranges, up

to $1,400 per week, there is a bigger share of female employment than male employment at

each pay range. After $1,400 per week the share of male employment vastly exceeds the share

of female employment. 23% of full time male employees earned over $2000 per week, while only

9.8% of females earned more than that.

313. One in eight full time male employees earns less than $800 per week, whereas 1 in 5.6 full

time female employees earns less than $800 per week. This strongly suggests that female

employees are more low paid and award dependent than male employees. The pattern

permeates through the rest of the pay distribution. An increase in the minimum wage is a crucial

measure for addressing the gender pay gap.

Figure 61: The gender profile of pay in Australia, share of full time male and female employees by payrange, August 2014

Source: ABS 6333, shares are an ACTU calculation.

314. Australia’s gender pay gap among full-time workers is now among the highest in the OECD,

higher than those of many countries to which Australia is typically compared. Figure 62 shows

the gender pay gap in OECD countries, measured using the median earnings of full-time workers.

It now exceeds that of the US.

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Figure 62: Gender pay gap in median earnings of full-time workers in OECD countries, most recentyear, per cent

Source: OECD Stat (http://stats.oecd.org/Index.aspx?DataSetCode=GENDER_EMP ). Data uses the latest year available for eachcountry, from 2012 onwards.

315. The OECD average gender pay gap has trended down since 2000, whereas Australia’s has

trended up from 2008, since the GFC, as shown in Figure 63. The OECD figure looks smoother

because it is an average. The OECD average is based on year to year data where the odd

observation is missing, but not enough to put the trend into question. Both series turned up in

2012.

0 5 10 15 20 25 30 35 40

HungaryNew Zealand

BelgiumNorway

DenmarkSpain

PolandItaly

GreeceIreland

GermanyFrance

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SwedenCzech Republic

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United StatesAustralia

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JapanKorea

Median female per cent of median male earnings, full time workers

http://stats.oecd.org/Index.aspx?DataSetCode=GENDER_EMP


Figure 63: Gender pay gap in median earnings of full-time workers, Australia and OECD average,

Source: OECD Stat (http://stats.oecd.org/Index.aspx?DataSetCode=GENDER_EMP ). OECD average computed by ACTU, someobservations missing.

316. Numerous academic studies of the gender pay gap in Australia have concluded that most of the

gap is unexplained by differences in experience, educational attainment, or other observable

characteristics other than gender. A NATSEM report in 2009 for the Department of Families,

Community Services, Housing and Indigenous Affairs found that 60% of the gender pay gap in

hourly earnings remained after controlling for workers’ characteristics other than gender.120 This

suggests that that women are not receiving equal remuneration to men for work of equal or

comparable value.

317. Adjustments to minimum wages would assist in reducing the gender pay gap. Maintaining a fair

and relevant safety net is n an important component of efforts to reduce gender pay inequity. All

other things equal, a larger minimum wage rise will reduce the gender pay gap.

318. Ensuring that low-paid workers, who are disproportionately women, receive fair remuneration is

necessary, but admittedly insufficient, intervention to ensure equal pay. Awarding our claim in

this Review will help to ensure gender pay equity.

120 Cassells, R., Vidyattama, Y., Miranti, R. and McNamara, J. 2009, ‘The Impact of a Sustained Gender Wage Gap on theAustralian Economy’, Report to the Office for Women, Department of Families, Community Services, Housing and IndigenousAffairs, National Centre for Social and Economic Modelling, University of Canberra, Canberra. Available from:http://www.natsem.canberra.edu.au/storage/gender_wage_gap.pdf [Accessed 24 March 2015].

0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Per c

ent

Australia OECD - Average

http://stats.oecd.org/Index.aspx?DataSetCode=GENDER_EMP

http://www.natsem.canberra.edu.au/storage/gender_wage_gap.pdf


OTHER MATTERS319. This chapter addresses some other matters, including such as minimum wages for juniors,

apprentices, trainees, and people with disability.

Juniors, apprentices and trainees

320. As part of the Minimum Wages Objective, the Panel is required, inter alia, to establish and

maintain fair minimum wages for junior employees and for employees to whom training

arrangements apply, namely apprentices and trainees.

321. Minimum wages for juniors, trainees and apprentices in modern awards are generally tied to a

percentage of an adult award rate of pay, or some other formula in the case of some traineeship

rates under the National Training Wage Schedule (NTWS). The practical effect of these wage

arrangements is that these workers are generally on rates of pay that fall well below the national

minimum wage that applies to an entry-level adult employee. Incontrovertibly then, juniors,

apprentices, and trainees are by definition some of the lowest paid workers in the country.

322. As we have already outlined, the ACTU seeks a hybrid increase to award rates of pay of

$30/3.9%.

323. The ACTU submits that this increase to award rates, or any other increase to minimum wages in

modern awards that the panel decides on, should flow through to juniors, apprentices and

trainees in the usual manner.

324. This means that minimum wages for both juniors and apprentices should be adjusted

automatically in line with increases to the NMW and other award rates (by virtue of the fact that

apprentice and junior rates are typically expressed as a percentage of the relevant adult

classification).

325. In the case of trainees, consistent with our submissions in previous years, the ACTU supports a

percentage increase to the rates in the National Training Wage Schedule that is equivalent in

percentage terms to the increase awarded to the NMW. A percentage increase is important to

prevent further compression of relativities within the NTWS and in relation to the NMW.

326. In the case of modern awards that contain separate trainee rates outside the NTWS, we support

a $30 increase to trainee rates that are equivalent to the C10 rate or less, and a 3.9 % increase

to trainee rates that are in excess of the C10 rate.

Employees with disability

327. In open employment, the Supported Wage System (SWS) Schedule provides for minimum wage

rates for employees whose productivity is affected by disability and who meet certain eligibility


criteria. Employees of Australian Disability Enterprises (ADEs) are largely covered by the

Supported Employment Services Award 2010 (the SES Award), which lists a number of approved

wage assessment tools, including the SWS tool, by which employees can have their wage rates

determined.

328. In our submission to the last Review, we informed the Panel of proceedings in this Commission

to vary the SES Award, in order to address matters arising from the judgement of the Full Court of

the Federal Court in Nojin v Commonwealth of Australia.121 The initial outcome of those

proceedings was to remove, by consent, the Business Services Wage Assessment Tool (BSWAT)

from the list of approved wage assessment tools described in that Award (subject to a transitional

arrangement)122. The proceedings are however not yet concluded, including elements of the

application seeking the reconsideration or removal of other wage assessment tools. There is a

significant conciliation process underway which involves, among other things, a trial of a modified

SWS tool and collection of workplace data. We understand that trial is expected to conclude by

approximately October 2016 however the outcome of the proceedings will likely extend

significantly beyond this period.

329. In our submission, in circumstances where matters that might otherwise fall for consideration

under this Review are being explored in other proceedings before the Commission, those other

proceedings ought to be permitted to run their course before any different approach is adopted

by the Review. Accordingly, we submit that that the Panel ought not in this Review depart from

its previous approach to setting wage rates for employees whose productivity is affected by

disability. We anticipate that we will adopt a different position in a future Review once the other

proceedings in the Commission have concluded.

330. The minimum payment for SWS employees in this Review should be adjusted by reference to

the annual CPI increase to the most recent March quarter in accordance with the adjustment

mechanism established by Division 2-CPI indexation of the Social Security Act 1991(‘SSA’). 123

331. The other wage assessment tools operate by reference to modern award minimum wages and

will, if retained, continue to operate in the usual manner.

Casual loading

332. The Panel would be aware that, as part of the four yearly review of modern awards, a number of

matters are being ventilated in common issue proceedings which may alter the character of

casual employment in several modern awards. Those proceedings are part heard and will not be

finalised before the Panel is required to make its decision in this Review. We submit that the

121 [2012] FCAFC 192122 See PR568011123 For further information, see ACTU’s submission to the 2012 Annual Wage Review, at [460].


casual loading in modern awards and for award/agreement free employees should, in this

Review, be maintained at 25 per cent.

Piece rates

333. Piece rates in modern awards are fixed by reference to minimum weekly or hourly wages in

those awards. Any adjustment in modern award minimum wages will and should automatically

flow through to employees engaged on piece work. 124

124 [2011] FWAFB 3400, [376].


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Bewley, Helen and David Wilkinson 23 February 2015 The impact of the national minimum wage onemployment and hours, National Institute of Economic and Social Research, UK

Bray, J. Rob 2013 Reflections on the evolution of the minimum wage in Australia: options for thefuture Paper for the HC Coombs Policy Forum of the ANU Crawford School of Public Policy, May

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de Linde Leonard, Megan, T. D. Stanley and Hristos Doucouliagos 2014 Does the UK Minimum WageReduce Employment? A Meta-Regression Analysis British Journal of Industrial Relations pp. 499–520

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Riley, Rebecca, and Chiara Rosazza Bondibene 2015 The impact of the National Minimum Wage onUK Businesses National Institute of Economic and Social Research and Centre For Macroeconomics,February, Report to the Low Pay Commission, UK

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D No: 34/2016