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2019 Federal Election Primer, Part 1: The Minimum Wage

21st April, 2019

This is the first in a series of posts discussing the major aspects of workplace relations policy in the lead-up to Australia’s federal election on 18 May 2019.

In March this year, leader of the Labor Opposition Bill Shorten declared this year’s federal election to be ‘a referendum on wages’ (see  ‘2019 election battle-lines drawn on industrial relations’).

Labor and its partners in the union movement, led by the Australian Council of Trade Unions, have been highlighting the problem with wage stagnation for some years now. After the mining boom years, wage outcomes in this country have been comparably suppressed (including in union-negotiated enterprise agreements). Wages have been increasing at only around 2% each year since 2015 (see the Open Letter on the Benefits of Promoting Faster Wage Growth signed by 124 Australian labour market researchers).

The ACTU’s demand for Australia’s minimum wage-setting process to be transformed through adoption of the concept of a ‘living wage’ now finds expression in ALP policy.

Before we get to that, how are minimum wages set now? Each year, an expert panel of the Fair Work Commission conducts an Annual Wage Review. Written submissions from stakeholders are considered along with commissioned research and submissions made in consultations and hearings.

Section 284(1) of the Fair Work Act 2009 sets down the following criteria which the FWC must consider in determining the wage rates to apply under modern awards and the national minimum wage order (for award-free employees):

(a)  the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

(b)  promoting social inclusion through increased workforce participation; and

(c)  relative living standards and the needs of the low paid; and

(d)  the principle of equal remuneration for work of equal or comparable value; and

(e)  providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

Similar criteria are expressed in section 134(1) which regulates the FWC’s exercise of its powers in relation to modern awards, with the addition of several other factors including:

(d)  the need to promote flexible modern work practices and the efficient and productive performance of work; and …

(f)  the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; … .

In the last five Annual Wage Reviews, the FWC has increased minimum wage levels by 3% (2013-14); 2.5% (2014-15); 2.4% (2015-16); 3.3% (2016-17); and 3.5% (2017-18). This puts the current national minimum wage at $18.93 per hour, or $719.20 for a 38-hour week.

A key focus of the ACTU’s #changetherules campaign is its argument that the wage-setting system must provide for a ‘living wage’ of at least 60% of median earnings. This would require changing the criteria which the FWC must consider in the Annual Wage Review to ensure that the minimum wage reflects the needs of a working family to obtain a civilised existence in contemporary Australia.

The ALP had already committed to the living wage concept, on the basis that the current rules don’t properly take into account the cost of living pressures faced by working people. Then, in late March, Labor announced more details of a two-stage process for implementing a living wage (Brendan O’Connor MP, Labor Will Make Sure the Minimum Wage is a Living Wage, 26 March 2019).

Step 1:

The FWC will determine what the living wage should be, considering submissions from community organisations, businesses and unions and taking into account the social wage (including tax levels, family tax benefits and transfers).

Step 2:

The FWC will determine the time-frame for a fair and responsible phasing in of living wage increases, considering the capacity of businesses to pay and the possible impact on employment, inflation and the economy.

This suggests that the initial setting of the living wage will overwhelmingly be focused on Labor’s objectives of ensuring that no full-time worker is living in poverty, and that living costs like housing, food, utilities, etc form a stronger part of the FWC’s determination than is presently the case.

The more economic-oriented factors (which make up the majority of the criteria under the current rules) would then form part of the FWC’s analysis in the stage two assessment of timing for implementation of living wage increases.

In the late March announcement, Labor also indicated that the living wage would only apply to those who are currently on the national minimum wage. Wage rates in modern awards will continue to be determined through the Annual Wage Review process.

However, subsequent discussion of that element of the announcement made clear that award wages cannot be completely insulated from increases to the national minimum wage, because the lower level classifications in many awards mirror the national minimum wage. Therefore the living wage increases under Labor’s proposal would flow through to considerably more than the 180,000 or so workers covered by the national minimum wage.

The Coalition Government was critical of Labor’s proposal, but has not articulated any position of its own (reflecting a broader vacuum on its part in the workplace reform debate). The default would therefore seem to be that the Coalition supports maintaining the current framework for Annual Wage Reviews by the FWC.

The ALP is right in seeking to elevate cost of living considerations to greater prominence in setting minimum wage levels.

Critics point out that Australia’s minimum wage is already high by international standards. But we also need to look closely at the Australian domestic setting, and ask: can we really expect someone to have a decent life, let alone support a family, on less than $40,000 a year (before tax)?

And surely we don’t want to head down the American road, where the ‘working poor’ hold down multiple jobs and still struggle. The US minimum wage of $7.25 an hour is not something we should aspire to. That’s what happens when you don’t have an institutionalised process for adjusting minimum wage levels that is broadly respected in the community, like the FWC.

However, changing the statutory criteria for setting the minimum wage is only one part of the puzzle. Addressing wage stagnation will also require revisiting the rules that govern enterprise bargaining, so that more workers can gain access to above-award pay increases. Labor’s proposals on collective bargaining will be discussed in Part 2 of this series.


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