05/06/2013 - 06:56

In a bind on wages policy

05/06/2013 - 06:56


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The Fair Work Commission’s annual wage review has highlighted the limitations of centralised wage fixing.

Readers with long memories will recall the days when Australia’s annual wage review was one of the most significant events in the economic calendar.

The rise of collective bargaining has greatly reduced the importance of centralised wage fixing, and means the wages of most workers reflect conditions in their own workplace.

Nonetheless, the Fair Work Commission’s annual wage review still directly affects more than 1.5 million employees in Australia who are award-reliant.

The review also sheds light on issues around income equality and workplace flexibility, which have a much wider significance.

This year’s ruling was, as usual, a compromise that didn’t fully satisfy any of the parties involved.

The commission lifted the national minimum wage by 2.6 per cent, or $15.80 per week, to $622.20/week.

That followed a 2.9 per cent rise last year.

Most business groups had proposed an increase of $5.80/week, arguing that any increase in employment costs should be kept at a low level, and that a flat, across-the-board rise was a better approach than a percentage increase.

The ACTU, by contract, had proposed a $30/week increase and, for those on higher award classifications, a 4.2 per cent rise.

In making its ruling the FWC repeated its long-held view that a small rise in the minimum wage would have little, if any, impact on employment levels.

That’s a contention many struggling small businesses would dispute, especially after taking into account the impact of employment on costs such as payroll tax and superannuation, or the ability of businesses to keep their staff or take on extra workers.

The outcome was dictated to a large degree by the framework that is imposed on the FWC, which must take account of a range of economic and social considerations.

In particular, relative living standards and the needs of the low paid are among the matters it is required to consider when fixing minimum wages.

The FWC found that while some modern award minimum wages have increased in real terms over the past decade, they have not kept pace with the level of wage increases generally.

Over the past decade, all award rates of pay have fallen relative to all measures of median and average earnings, it concluded.

Specifically, the national minimum wage has fallen as a proportion of full-time adult median earnings from 57.5 per cent in 2002, to 52.7 per cent in 2012.

The commission recognised that structural economic shifts can affect this analysis.

It noted the broad shift in the economy toward higher-skilled jobs, which affects measures of average and even median earnings.

“For this reason, we would not expect award rates, especially for the lower-skilled jobs, to rise as fast as the average,” the commission said.

But rather than focusing on the positive aspects of higher wages growth for people in high-skilled jobs, the commission saw a problem.

In particular, it said, the decline in the relative living standards of award-reliant employees affected the needs of the low paid, on the basis that ‘needs’ is a relative concept.

“If not addressed, these trends may have broader implications both for our economy and for the maintenance of social cohesion in Australia,” the commission concluded, rather alarmingly.

Having said that, the FWC also acknowledged that increases in minimum wages were a blunt instrument for addressing the needs of the low paid.

It accepted that a significant proportion of low-paid adult employees actually live in middle to high-income households.

An analysis of 2011 household income data showed that about 30 per cent of low-paid adult employees live in households in the top four income deciles.

The commission also accepted the tax-transfer system can provide more targeted assistance to low-income households and is a more efficient means of addressing poverty.

Encouragingly, it called on parties making submissions for next year’s wage case to address this critical issue, perhaps laying the groundwork for substantive reform.



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