Australia must maintain a balanced, independently set minimum wage

Australian employers, employees and job-seekers need to be assured that the Fair Work umpire would remain truly independent in setting minimum wages if Labor wins government, the Australian Chamber of Commerce and Industry, Australia’s largest network of businesses said today.

“For more than a century, minimum wages have been set by an independent body – not the Government, nor Parliament,” Australian Chamber CEO, James Pearson, said.

“Recent comments by the Opposition, predicting the Fair Work Commission would ‘share the priorities’ of an incoming Labor government need to be clarified.

“Wage decisions must be made on their independent merits, and not allow for political influence.”

Mr Pearson highlighted the need for the Fair Work Commission to continue to independently balance the evidence on factors such as:

–       The needs of low paid employees

–       The overarching economy

–       Not increasing unemployment

–       The importance of keeping small businesses in business.

“Manipulating these factors could lead to bad outcomes,” Mr Pearson said.

“It could see one person’s pay-rise cost another person their job.

“If Labor seeks to influence Fair Work Commission decisions, they should explain what they believe Commission is doing wrong.

With the Fair Work Commission awarding minimum wage increases of 3.5% in 2018, and 3.3% in 2017 – well in excess of inflation and wage growth across the wider community – it’s hard to see how that is letting down lower paid employees.

Mr Pearson called on Labor to:

1. Guarantee the ongoing independence of the Fair Work Commission in setting minimum wages.
2. Confirm if it still believes, as it said when last in government that:“…national minimum wages should not be set so high as to place undue financial burden on businesses, discouraging them from employing…low skilled marginal workers…”(Labor Government Submission 2013 Annual Wage Review para 182, Labor Government Submission 2012 Annual Wage Review Chapter 4, paragraph 26).

This week’s discussion on minimum wages, has revealed substantial misunderstandings about the role of the Fair Work Commission and how it sets minimum wages. The fact sheet below sets the facts straight.

 

National Minimum Wage Setting Fact Sheet

– For more than a century, minimum wages in Australia have been set by an independent body, not the Government, or Parliament. Just as interest rates are set by the independent Reserve Bank – this ensures minimum wage setting is non-political and balances all competing interests.

– The Fair Work Commission does not set all wage rates across the Australian economy. It sets a National Minimum Wage and around 2,000 other, higher minimum wages that are reviewed and increased annually and apply in total to 23% of working Australians.

• Only around 200,000 workers (1.9%) earn the actual National Minimum Wage of $18.93 an hour ($37,398 a year) out of around 10 million employees.[1]
• Up to 2.3 million workers (22.7%) are on higher minimum wages included in awards. The vast majority of minimum award wages are above the National Minimum Wage and can reach as high as $171,315 a year (Air Pilots Award 2010)[2].
• 5 million other Australians have their pay set by enterprise agreements, over-award payments or by common law agreement.

– The last minimum wage increase was on 1 July 2018, minimum wages increased by 3.5 percent (inflation for the same period was only 1.9%).[3]

National Minimum Wage v Inflation

– Minimum wages are already growing by significantly more than prices, which means they are increasing purchasing power and living standards.

– The average minimum wage increase over the current business cycle (from 2011-2012) has been 2.9%, inflation for the same period has averaged just 1.9%.

– Minimum wages are increasing faster than living costs. Since 2011-2012 minimum wage increases have exceeded inflation by more than 1%[4] each year.

– Australia’s has the second highest minimum wage in the world, behind only Luxembourg.

Needs of the Low Paid

–  Under the Fair Work Act, the Fair Work Commission already looks extensively at the needs of the low paid as a part of a range of factors it must consider in deciding on wage increases.

– The Fair Work Commission regularly conducts research into the needs of the low paid to inform its Annual Wage Review decisions. Last year this included a paper on ‘Characteristics of workers earning national minimum wage rate and of the low paid’.

– Setting an arbitrary target or forcing the Fair Work Commission to give greater weight to some factors over others would destroy its independence and would not allow it to take into account all of the relevant factors that it does now including the impact on job creation, the effect on the viability of employers, and the state of the economy.

– In its 2016-2017 Annual Wage review decision, the Fair Work Commission explicitly ruled out the ACTU Living Wage proposal stating “we do not find this to be a helpful characterisation, since there is nothing particularly analytical about having a number to aim at”.

– The Fair Work Commission has found that the characteristics of workers earning the National Minimum Wage rate and of the low paid typically are female, employed on a casual basis, working part-time, award reliant and aged between 15 and 20 years.

– Over two-thirds of low-paid workers leave low-paid work within a year. When they move into a higher-paid job they can expect a 58 percent wage increase on average.

Reference List:

[1] Australian Government Submission to the Annual Wage Review 2018.

[2] Australian Government Submission to the Annual Wage Review 2018.

[3] Annual Wage Review Decision 2018, para 150.

[4] Gap between CPI and nominal minimum wage increases from 2010 to 2018 is 1.011%