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Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper

Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper Chair, Australian Fair Pay Commission Address to John Curtin Institute of Public Policy 25 May 2007. AFPC – some history Chair announced 13 October 2005

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Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper

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  1. Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper Chair, Australian Fair Pay Commission Address to John Curtin Institute of Public Policy25 May 2007

  2. AFPC – some history • Chair announced 13 October 2005 • wage-setting powers conferred and four Commissioners appointed 27 March 2006 • first wage-setting decision delivered 26 October 2006 • first decision implemented 1 December 2006

  3. Remit • The Commission exercises its wage-setting powers by: • adjusting the standard Federal Minimum Wage (FMW) • determining or adjusting special FMWs (e.g., for workers with a disability) • determining or adjusting basic periodic rates of pay in the Australian Pay and Classification Scales (the “Pay Scales”) • determining or adjusting basic piece rates of pay • determining or adjusting casual loadings

  4. Objective and constraints • The Commission’s objective specified in legislation is to promote the economic prosperity of the people of Australia • In exercising its powers, the Commission must have regard to: • the capacity for the unemployed and low paid to obtain and remain in employment; • employment and competitiveness across the economy; • providing a safety net for the low paid; and • providing minimum wages for junior employees, employees to whom training arrangements apply and employees with a disability that ensure those employees are competitive in the labour market

  5. The 2006 Decision • $27.36 per week for people earning up to $700 per week • covers just over one million Australian workers - about 10% of the workforce • $22.04 per week for people earning $700 per week and above • represents another 220,000 workers or a further 2% of the workforce Increases flow on to junior employees, employees to whom training arrangements apply and employees with a disability

  6. Decision rationale - 1 • higher increase for pay-scale reliant workers earning up to $700 per week reflects research findings and advice that lower-paid workers are more reliant on minimum wages • research also shows that higher paid workers are generally more likely to negotiate wage increases directly with their employers by agreement-making

  7. Decision rationale - 2 • decision balances sensitivity of low-paid employment to wage movements (“demand”) with incentives for people to seek and remain in paid employment (“supply”) • decision also balances employment and competitiveness across the economy with provision of a safety net for the low-paid

  8. Decision rationale - 3 Decision took into account: • period of almost 18 months since the previous adjustment of Australia’s federal minimum wages • continued strong (although not uniform) performance of the economy and labour market • movements in consumer prices • potential impact on unemployment and inflation

  9. Characteristics of low-paid workers • Low-paid adult workers are more likely than the general workforce to have the following characteristics … • employed in relatively low-skilled occupations • lower levels of education • relatively young (21 to 24) • female • not married • low equivalent household disposable income • employed on a casual basis • migrants from a non-English speaking background

  10. Award- or Pay Scale-reliant industries • Accommodation, cafes & restaurants (57.2%) • Retail Trade (28.7%) • Health and Community Services (25.4%) • Personal and Other Services (23.4%) • Property and Business Services (23.2%) • Source: ABS Employee Earnings and Hours Survey, May 2006

  11. 2007 Minimum Wage Decision • Submissions called 1 December 2006 • Submissions closed 30 March 2007 • Decision scheduled mid-2007

  12. 2007 Decision - context Economic growth (GDP Dec ’06) 2.8% p.a. (seasonally adjusted) Wages growth (WPI Mar ‘07) 4.1% p.a. (seasonally adjusted) Inflation (CPI Mar ’07) 2.4% p.a. (seasonally adjusted) Unemployment (Mar ’07) 4.4% (seasonally adjusted) from 2.7% (WA) to 5.6% (Tas) The 2007 Decision will recognise the elapse of about 7 months since the implementation of the 2006 Decision

  13. Public awareness of the AFPC UNPROMPTED PROMPTED Aware of the AFPC Aware of Wage Decision Aware of AFPC by function and name Aware there is a body to set wages but can not recall the name 43% have heard of the AFPC 38% aware of the Oct 2006 Decision 5% recalled the name unprompted 45% aware there is a body but cannot name 29% had heard of AFPC as at mid October 2006 Source: AFPC-commissioned survey of 1,000 randomly-selected Australians (including 300 earning FMW) undertaken in December 2006

  14. Performance on key attributes Considers economic impact Decisions based on research Considers social impact Listens to key orgs Honest and open Consults gen pop Independent Transparent All respondents giving a positive or negative rating 9-10 Positive 7-8 % 3-4 Negative 1-2 Base n= 286, all respondents aware of the Commission and giving a rating of overall performance Q27: Given what you know about the Commission, in your opinion, how would you rate The Commissions’ performance on the following attributes?

  15. Stakeholder engagement - 2007 • The Commission has: • established a Business Consultative Group • implemented a Research Consultative Group • formed specialist Roundtables (e.g., for workers with a disability) • commissioned research into stakeholder responses to the Commission’s procedures and 2006 Decision • scheduled face-to-face meetings with key stakeholder representatives

  16. Consultation (1) – 2007 Program of targeted focus groups (social research) during February - March 2007 Theme Locations Low paid Melbourne, Brisbane, Whyalla, Geraldton, Tamworth, Shepparton Employers Melbourne, Perth, Canberra, Coffs Harbour Juniors Adelaide, Cairns, Sydney, Alice Springs, Bendigo, Hobart Unemployed Adelaide, Brisbane, Darwin, Burnie Indigenous Sydney, Townsville CALD Sydney, Melbourne

  17. Consultation (2) - 2007 • Internet ‘bulletin board’ established • national facilitated discussion groups • Site visits: • employers of the low paid • job network providers • training providers • schools and technical colleges

  18. Submissions 2007 • National submissions campaign implemented: • posters and brochures encouraging community submissions distributed to more than 7000 community locations across Australia including: • local libraries • local Councils • community centres • neighbourhood houses • job network providers and • community legal services • Online submission form developed and available at www.fairpay.gov.au

  19. Submissions 2007 • Commission received 62 submissions • Employer organisations 23 • Employee organisations 6 • Community organisations 11 • Individuals 10 • Businesses 3 • Professional/education 3 • Government agencies 6

  20. Commissioned research • 2006: • minimum wages and employment • characteristics of low-paid employees • characteristics of employers of the low paid • interactions between minimum wages and the tax/transfer system • 2007: • monitoring strategy to determine the impact of Commission decisions • economic and social circumstances of young people aged 15-20

  21. What type of organisation? • a focus on unemployed and low-paid Australians and their employers • decisions are evidence-based, informed and balanced • procedures are open, transparent and independent • emphasis on research and analysis • a respected authority on the link between employment and minimum wages in an Australian context

  22. Pay scales • pre-WorkChoices, awards included rates of pay and were ratified and published by AIRC • currently more than 3,200 federal awards and approx 105,000 pay scales • many awards and associated pay scales are redundant • government has been publishing pay scale summaries since Commission’s first decision • Commission will commence process of creating new pay scales

  23. Forward agenda • During 2007, the Commission will: • undertake its second minimum wage review • including consideration of a request by the NFF to defer decision in EC declared areas • undertake a review of pay scales – or piece rates – for the real estate industry • commence work on the rationalisation of pay and classification scales – this will include a review of wage rates for juniors and trainees

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