Greg Combet's Opening Address To Living Wage Case

Greg Combet's Opening Address To Living Wage Case

Our key objective is to attain the greatest benefit for the lowest paid, and at the same time to ensure that - on the basis of fair criteria - all workers have access to a wage increase says ACTU Secretary, Greg Combet.

Introduction

Your Honour and members of the Bench, when the applications in these matters first came before the Commission on 10 November, I reported that the union movement, at the recent ACTU Congress, had reaffirmed its commitment to a Living Wage as the basis for national wage case applications over the next three years.

 

The Congress policy commits the union movement to collective bargaining as the key method by which wage improvements will be pursued for union members, but it also emphasises the firm commitment of unions to a Living Wage as the basis for seeking improvements in award rates of pay.

 

Our concept of a Living Wage is based upon the principle that Australian workers and their families are entitled to a decent standard of living.

 

We say therefore that the fixing of minimum rates of pay must have regard to standards of income adequacy. That the award safety net must ensure a decent standard of living for those workers who rely upon it.

 

And in pursuing this approach it is clearly the needs of low paid workers which is of principal concern.

 

The concept of a Living Wage and the principles which it embraces is entirely consistent with the obligations of the Commission in discharging its duties in relation to the safety net of awards.

 

The Commission must have regard to the needs of the low paid. S. 88B(2) of the Act provides that the Commission must ensure the establishment and maintenance of a safety net of fair wages and conditions of employment.

 

In so doing the Commission must have regard, amongst other factors, to the need to provide for fair minimum standards in the context of living standards generally prevailing in the community, and the needs of the low paid.

 

The union movement's Living Wage concept is therefore in general accord with the Commission's obligations in maintaining an award safety net.

 

And I remarked also on the last occassion that concern for the low paid is particularly important in the context of a wages system based primarily upon bargaining. The language of s.88B(2) reflects this concern.

 

Since the commencement of formal bargaining Average Weekly Ordinary Time Earnings have increased by more than 20% whereas award wage rates have increased by only 8%. During that time prices rose by some 14%.

 

Workers who rely on award minimum rates are therefore falling well behind - with low wages which are declining further in real value.

 

This is a key concern for the union movement. Those Australians who are dependent upon award rates for a wage increase have had their living standards eroded relative to those who have have received increases through bargaining. They have been even further eroded relative to those in receipt of executive salaries - who have enjoyed average annual increases in the order of 6% for several years.

 

The union movement is determined to prevent the development of a class of working poor in this country. Workers who cannot benefit from bargaining must not be left behind by the community as a whole.

 

And they should not be left behind, because there is a substantial social cost for increased inequality. It is not good enough to say, in the union movement's view, that we simply accept this widening gap between market rates and award rates. Nor is it enough to say that we wish to simply maintain the real value of minimum award rates.

 

The maintenance of the real value of minimum award rates does little to improve the ability of low paid workers make ends meet, and it will make no impact upon the widening income inequality. What is needed is a substantial boost in minimum award rates to close the gap.

 

This is the commitment which underpins our Living Wage concept, and we say that it is also the obligation on the Commission under s.88B(2) of the Act.

The Claim

In specific terms our claims for a Living Wage are simple. They involve a 2 year term. The applications to vary which are before the Commission seek the following:

 

 

  • An increase of $20.60 per week in minimum award rates from April 1998, so as to achieve a Federal Minimum Wage of $380 per week or $10 per hour for the ordinary hours of work.

 

 

 

  • A further increase of $38 per week (or 7.7% above certain classification levels) in minimum award rates from April 1999, so as to achieve a Federal Minimum Wage of $418 per week or $11 per hour for the ordinary hours of work.

 

 

The applications for these increases have been made in relation to minimum rates awards. No actual variation applications for an across the board safety net increase for all awards of the Commission have been made on this occassion.

 

However, the ACTU does seek the establishment by the Commission of a process to ensure that all workers - including those who are not covered by minimum rates awards - have access to a wage increase. Many employees who would not benefit from an increase in minimum rates may also not benefit from bargaining.

 

These employees may include for example those in the public sector unable to achieve an agreement, or indeed low paid employees under a minimum rates award - also unable to achieve a bargaining increase - but whose overaward payment absorbs the minimum rates adjustment.

 

Therefore, the ACTU seeks an in-principle determination that two $20 per week (one in 1998, one in 1999) safety net increases be available where bargaining has been unsuccessful and where a worker has not benefited from the increases in minimum rates.

 

Mr Belchamber will explain the detail of this proposal in due course.

 

However, our intention should be made very clear. Our key objective is to attain the greatest benefit for the lowest paid, and the applications to vary have been structured accordingly. At the same time we wish to ensure that - on the basis of fair criteria - all workers have access to a wage increase.

 

This is consistent with the Act. The Act does not confine increases or fairness to the lowest paid employees alone.

Key Beneficiaries - Low Paid Employees

In terms of the applications to vary we submit that low paid workers will be the key beneficiaries because:

 

 

  • The $20.60 and $38 increases apply only to minimum rates of pay in minimum rates awards. These increases are to be absorbed against above award payments and agreements. Those who rely upon the minimum rates will therefore be the principal beneficiaries. To illustrate this point, the Average Weekly Ordinary Time Earnings for a tradesperson (on the latest available figure from May 1996) is $600.40 per week - which compares to the current award rate of $451.20 per week. A tradesperson on the award rate would benefit from the claim, a tradesperson paid at the market rate would not.

 

 

 

  • Workers covered by enterprise agreements or who receive other above award payments will therefore not receive the increase. About 65% of Federal award employees, for example, are estimated to be covered by agreements.

 

 

 

  • The increases are also principally flat dollar amounts, meaning that the greatest percentage benefit occurs at the lowest wage rate. For example, the $20.60 increase represents a 5.7% increase in the Federal Minimum Wage, but only 2.3% at the top of the classification structure in the Metal Industry Award.

 

 

 

  • The workers who rely upon minimum award rates are predominantly at the least skilled and lowest paid classification levels. Workers at higher classification levels will not benefit from the increase because they are almost entirely in receipt of above award payments.

 

 

 

  • The ACTU will also show that the key beneficiaries of the claim earn incomes which fall in the bottom third of the income distribution in our society. They have incomes which are also well below the Consensual Poverty Line, which at present is about $490 per week.

 

 

These are important elements of our case which will be developed in greater detail.

 

And we will also present material to the Commission which identifies how hard it is for low paid employees to make ends meet. In this regard the ACTU will present witness evidence, a review of Household Expenditure material, and look at practical examples such as the limitations of living with a weekly disposable income of $400.

 

It must be borne in mind that the net pay for a full-time employee who is paid the Federal Minimum Wage is only $302.10 per week. For an employee paid the full-time rate at the trades level, the net pay is only $366.35 per week. The beneficiaries of our application fall substantially within these wage levels.

 

Many of the employees who will benefit are women, young people, and workers of non-English speaking backgrounds. Many low paid casual and part-time workers will benefit as a result of the increase in their hourly rate of pay.

 

In looking at such issues we will also deal with the relationship between wage levels and public forms of income support.

 

The ACTU material will demonstrate that the applications will benefit low paid workers, and that the increases we are seeking would provide for a modest improvement in the ability of low paid workers to make ends meet.

Economic Context

We will also demonstrate that our applications are economically responsible.

 

In this regard we will focus upon a number of issues, including:

 

 

  • Current economic conditions and the outlook for the economy.

 

 

 

  • The likely impact of the claim, if it is granted, on a range of variables.

 

 

 

  • The cost of the claim, and in particular inflationary and employment consequences.

 

 

Our submissions will show that the economic circumstances can sustain the increases we are seeking.

 

The recent National Accounts figures show improving growth. The annual rate of growth is in the 4% range. The 1.5% GDP growth in the September quarter was the highest quarterly growth for two years. The economy is unquestionably in a higher growth, low inflation position.

 

Wages growth, which I will refer to shortly, must also be seen in the context of surging productivity. Output per hours worked grew at almost 2% in the September quarter - the highest quarterly result for some years - and at 4.8% in the past 12 months.

 

Bargaining and aggregate wage outcomes in the region of 4 to 5%, in our submission, are of little concern with respect to monetary policy, when they are produced in an economy with solid productivity growth.

 

Criticism of the ACTU claim already seems to have focussed however on two issues - the assertion that the wage increases, if granted, would cause inflation and interest rates to rise, and that employment levels would fall.

 

The Workplace Relations Minister has already been reported as saying that the ACTU claim on this occassion will cost literally hundreds of thousands of jobs and push up inflation and interest rates.

 

The ACTU rejects these unsubstantiated assertions.

 

During the conduct of the last National Wage proceedings there were repeated claims, most notably by the Reserve Bank, that the ACTU claim, if granted, would have monetary policy consequences.

 

As I raised at the hearing on November 10 it is the ACTU's view that the assertions which were made about the cost and effects of the ACTU claim during the last case, and which may be repeated, need to be carefully examined. We do not agree with those assertions.

 

Whilst it is not our wish to unnecessarily dwell upon the last National Wage proceedings, it will be important in our submission to revisit crucial aspects of the April 1997 Safety Net Review decision to analyse the cost issue.

 

And I would like briefly to indicate why that is our view.

 

The April 1997 decision reveals that the Commission was considerably, and quite appropriately, concerned with identifying the cost of the ACTU claim.

 

But in considering the issue substantial weight was given by the Commission to the views of the Reserve Bank.

 

It will be our submission that the faith shown by the Commission in the Reserve Bank in the last case was not well founded, and that a cautious approach to the arguments raised by the Bank is justified in these proceedings.

 

In the last case, and having regard to the views of the Reserve Bank, the Commission clearly considered that the amount of any increase it could grant was constrained by the need to limit aggregate wages growth to a level commensurate with inflationary targets.

 

In adjudicating the level of increase available, the majority decision said at page 50:

 

The amount of that increase is constrained, however, by the need to limit the addition to AWOTE. We have noted the Reserve Bank's intimations of the order of increase which, in its view, accords with its inflation target. Any increase greater than the amount which we grant carries a risk, in our view, of leading to a rise in interest rates.

 

The Commission went on (at page 50) to express regret that, because of these constraints, it was unwilling to take that risk and would not therefore award an increase greater than $10.

 

The Commission also expressed the hope (at page 50) that in the future there may be a lower level of bargaining settlements so as to leave "space" for a more generous treatment of workers fully or substantially dependent on award wages.

 

To understand the significance of this reasoning, in the context of the current ACTU claim, one must recall the claim which was made on the last occasion.

 

The specific application of the union movement in the last national wage case sought increases in minimum rates so as to establish a minimum hourly rate of pay of $10 (or $380 per week) for the ordinary hours of work, as well as a $20 per week safety net increase.

 

The percentage increase in minimum rates sought was 8.75%, which equated to a $30.60 increase at the entry level classification.

 

The current application therefore seeks, from April next year, the same minimum wage standard which was sought in the last national wage case. However, on this occasion we seek only a $20.60 per week flat increase in minimum rates awards to establish that standard.

 

In awarding a $10 per week safety net adjustment in the April 1997 decision, the Commission indicated that the cost of the ACTU claim was a key concern - and was a key reason for rejecting the ACTU claim.

 

As I indicated previously, the Commission made reference in its' decision, and relied upon, the views of the Reserve Bank concerning the cost of the ACTU claim.

 

In its conclusions concerning this issue the Commission also said the following (at page 49):

 

The ACTU wage claim, through its direct and indirect effects, would add substantially more than 2 per cent to AWOTE. Its impact on the growth rate of AWOTE would depend upon matters of timing; but it is reasonable to believe that within a year AWOTE would rise by well over 2 per cent.

 

Even when allowance is made for the component in current growth in AWOTE which is due to past award increases, success of the ACTU wage claim in this case would entail a growth rate in AWOTE (above 6 per cent) well in excess of the current inflation rate. It is reasonable to think that the inflation rate would rise to a significantly higher level unless the monetary authorities took corrective action. That action would adversely affect both the growth rate of the economy and the level of unemployment.

 

Your Honour, these conclusions largely draw upon the arguments advanced publically by the Reserve Bank. As I have already indicated, the ACTU will contend that the Bank's arguments should be subject to scrutiny in the light of experience.

 

The key issues in this regard are as follows:

 

 

  • At the time of the last case the Reserve Bank stated that the ACTU claim would push the growth in AWOTE beyond an annual rate of 4.5%. The Commission accepted this proposition.

 

 

 

  • The RBA further argued that a growth rate in excess of 4.5% in AWOTE would push the underlying inflation rate beyond the RBA target of 2 to 3%. The Commission accepted this proposition.

 

 

 

  • In effect the RBA said that the allowable level of AWOTE growth, before there would be an adverse inflationary impact, was 4.5%. This was the size of the available wages pie to be shared by the community. And because most of the pie had already been gobbled up by enterprise bargaining, executive salary increases and other factors, the economy could only sustain a limited increase for workers who rely upon awards.

 

 

In this environment, and having regard to the uncertainty at the time about bargaining outcomes and other factors, the Commission adopted a cautious approach and was persuaded to award no more than $10.

 

This case however can be conducted with the benefit of some more experience and information concerning the wages system and wages outcomes. In relation to the RBA position at the time of the last case this experience is instructive:

 

 

  • The $10 per week increase in the April 1997 decision has to date not imposed upward pressure on inflation and interest rates at all. The current headline inflation rate is minus 0.3% (the lowest figure recorded since 1962), while the underlying rate is just 1.5%. These key indicators have fallen.

 

 

 

  • There have been no less than two interest rate cuts since the Commission decision in April, far from a static position and even further from an increase.

 

 

After a lengthy period of flat growth in Average Weekly Ordinary Time Earnings the latest figure for annual growth is 4.4%. This figure was released after the initial 10 November hearing of these applications. While the latest AWOTE figure is nudging the so-called RBA limit, our submissions will be emphasising several key facts:

 

 

  • It is now generally accepted that the official AWOTE figure substantially overstates actual wages growth. Indeed this much has been accepted by the Reserve Bank.

 

 

 

  • Professor Peter Dawkins of the Melbourne Institute of Applied Economic and Social Research puts wages growth as much as 1 percent below the official AWOTE figure.

 

 

 

  • The key distortion arises from compositional change within the workforce - whereby the average wages figures are inflated by the movement of people to higher paid positions, and by the abolition of lower paid jobs.

 

 

 

  • A further distortion arises from the annualisation of wages, penalty rates and overtime into an all-up salary.

 

 

 

  • We will also submit that the simplistic proposition that, at a defined level of aggregate wages growth, there is likely to be an increase in inflation and therefore interest rates, is fallacious. Many other factors must be considered - from the effect of productivity improvements, to exchange rate movements through to the nature, content and distribution of the wage increases which are occurring.

 

 

Some of these issues were recently summarised in an article by Stephen Long in the Australian Financial Review .

Exhibit

The Reserve Bank itself recognises these issues. The August RBA Bulletin acknowledges that the growth in AWOTE is actually overstated, that the impact of the last $10 per week increase awarded by the Commission is small, and that underlying inflation will remain below 2% for some time ahead.

 

But the most instructive guidance as to the contemporary RBA view is revealed in the evidence of RBA Governor Ian MacFarlane to the House of Representatives Standing Committee on Financial Institutions and Public Administration on November 6. The Hansard record of the Governor's evidence is contained in the Exhibit.

 

To illustrate the general point about the RBA wage growth limits upon which the Commission at least in part relied in the April 1997 decision, I would like to quote some of the evidence.

 

At page 43 of the Hansard record a member of the Committee asked Mr MacFarlane if the RBA thinks the AWOTE figures are distorted by compositional change. Mr MacFarlane says:

 

We do. We think the public sector ones have to be because the average has gone up faster than any of the known components, and part of that then flows through to the total. We have conceded that with the AWOTE numbers there are probable overstatements. I think I referred to that earlier when I said even before the main meeting we were conscious of the fact that we thought there were probable overstatements. It does not sound very convincing for the central bank, having said 4 1/2 percent is the upper limit, as my predecessor said, to then, a week after the upper limit is breached, go and ease monetary policy on the ground that we had a few private misgivings about the quality of the statistics.

 

So here we have an explicit acknowledgement by the RBA that its 4 and a half percent limit for AWOTE growth is flawed by the quality of the statistics. Not only that, the bank was conscious of revealing its private misgivings about the figures because of the potential damage to its' own credibility and the credibility of its wages limit. And yet this was a crucial test in the treatment of the ACTU claim in the last wage case.

 

Mr MacFarlane was also queried about the Banks role in wage setting, to which he replied in part (page 22 transcript):

 

But all we can really do on wages is set very broad parameters. Some people were quoting the phrase 'The Reserve Bank is now the wage policeman'. I am not sure what that means, but I do not think we are, in the sense that we are not experts on wages and industrial relations and we cannot sit down and argue the point about this award or that over-award payment or whatever.

 

When questioned on the Bank's attitude to the last ACTU claim Mr MacFarlane said again that the Bank was not an expert, and also observed (page 47 transcript):

 

We do not claim to be able to nominate what rate of increase each of the particular channels that go to make up the aggregate figure should be. We have not got any power or responsibility in that area. For many years we have drawn attention to the fact that executive salaries have increased faster than we believe to be consistent with inflation and productivity. We will continue to do so. But we cannot specify the rates of increase for the enterprise bargaining stream, for the award stream or the executive stream. The other stream that none of us fully understand is the bit that I have not specified. That is where a lot of the action is. (here referring to other factors such as compositional change which affect the aggregate wages figure)

 

Now, in view of the Bank's high profile public comments about the last Living Wage claim, specific enterprise bargaining outcomes which have exceeded 4.5% per year increase, and the application to vary the Transport Workers Award, these are important admissions from the RBA Governor.

 

The Bank is not an expert on wages, it cannot say what rate of increase should occur in any of the components of aggregate wages growth, it does not fully understand the effects of compositional change on aggregate wages growth, it has had private misgivings about the voracity of the official statistics upon which it based its 4.5% wages ceiling.

 

But most notably, the Bank was concerned that its' credibility would have suffered if it was to ease monetary policy when wages growth exceeded the 4.5% limit - even though, presumably, an easing of policy might otherwise have been justified. As Mr MacFarlane said, this would not look very convincing.

 

Mr Belchamber will take the Commission to the transcript during the case.

 

But the ACTU believes that some extremely important points emerge from the economic indicators and from the Governor's evidence:

 

 

  • Firstly, that the Commission should exercise considerable caution before accepting any proposition that there is a ceiling to aggregate wages growth which directly correlates with the level of inflation and interest rates. A view, for example, which says that an increase of greater than $10 will push AWOTE growth beyond 4.5%, and therefore cause a rise in underlying inflation, and therefore a rise in interest rates - is a view which could well deny low paid workers a more substantial but economically responsible increase.

 

 

 

  • Secondly, that - even if the Reserve Bank thesis is accepted (i.e. that there is a ceiling to aggregate wages growth) - the official wages growth figures must be viewed with a considerable degree of scepticism. On the basis of the current figures there is no doubt in our submission that there is a significantly greater amount of space for the awarding of an increase than the official statistics imply, and much more space is available than would be taken up by the $10 awarded last time.

 

 

 

  • Thirdly, it should be borne in mind that the Act does not talk about - as the April 1997 decision does - how much space is left over which would allow a more generous treatment of low paid workers. Rather, the Act encourages bargaining and at the same time requires the Commission to maintain award wages having regard to prevailing living standards. In balancing these obligations with economic factors, it is surely a question of the weight to be afforded views such as those expressed by the Reserve Bank.

 

 

 

  • And fourth, it is important not to lose sight of the broader economic circumstances. As I said earlier, growth is strong, productivity is surging, and inflation is at historic lows. Surely the conditions support a responsible but substantial increase for low paid workers.

 

 

On the issue of the cost and economic impact of our claim, we say that all these factors should be properly examined. So too should the effect of the absorption we are proposing be recognised, as well as the fact that the applications to vary are confined at this stage to minimum rates awards. The form of any wider safety net adjustment as per our claim will also give the Commission closer control of the process.

 

And in proceedings of such importance it is vital that decisions are not made on the basis of mere public assertions. If the test of cost and RBA limits is to be applied in this case, it should be applied on the basis of properly tested material.

 

The cost of the claim will again be a central issue and concern in these proceedings. We have indicated our wish to deal with the issue expeditiously, transparently, and with a view to minimising areas of disagreement.

Wages System and Bargaining Context

Your Honour and members of the Bench, our evidence and submissions will also address the claim in the context of the wages system and collective bargaining. The Commission of course, under the Act, must have regard to the encouragement of bargaining at the workplace level. In the April 1997 decision there was considerable discourse concerning the need to maintain an incentive to bargain, and the indirect cost of any award increase because of its impact on bargaining.

 

Several of our witnesses will be key union officials who are involved in the bargaining process in important industries. They will attest to the fact that the Commission's adjustment of the safety net has little if any relevance to the incentive to bargain or to bargaining outcomes.

 

We will also illustrate that nominal wage increases in enterprise agreements are often offset by productivity and efficiency measures as well as labour cost savings.

 

In the context of the wages system more generally we will argue that low paid workers should not be made to bear a disproportionate and unfair burden in pursuit of economic policy settings.

 

The inherent inequality of a system which says that its OK for executive salaries to rise in an unrestrained manner, for the market to determine bargaining outcomes, and that wages for the low paid must therefore be suppressed in order to restrain aggregate wages growth and inflation is an issue demanding attention in the community. For our part, we say emphatically that it is not what the Act stipulates.

 

Executive salaries for example are growing at around 6% per annum, although for chief executives in the top 50 listed companies they have grown by 15% in the last year. Bargaining outcomes are at 4 to 5%. Award rates have grown in recent years at around 1 to 1.5%. But under this system it is award rates which are the subject of control. It is award rates, on the Reserve Bank argument, which must be restrained so as to keep AWOTE growth within the comfort zone.

 

Certainly we recognise that the Commission attempted to grapple with this issue in the April 1997 decision.

 

And certainly the Commission must balance and make a judgement about economic and social factors, as well as its obligation to encourage bargaining.

 

But the essence of our case is that, in this judgement, the Commission should go as far as it possibly can in awarding a substantial boost in the real value of minimum wage rates. And that this should be enshrined as the essential feature of minimum wage fixing in the context of the current wages system.

 

Already it appears that the ACCI, and possibly the conservative governments, will oppose any increase for low paid workers in this case.

 

They say in effect that the low paid must experience further declines in the real value of their wages and living standards, while the business leaders in the community increasingly bask in the comfort of million dollar plus packages, share options and salary sacrifice and tax deferral arrangements.

 

In the meantime we are here seeking, in terms of the first component of our claim, a mere $20.60 per week increase for employees who take home as little as $302 per week for a full-time job.

 

We believe that, in the current economic conditions, with strong growth, low inflation and surging productivity, this increase is affordable and responsible, and is justified by reference to the needs of low paid employees.

 

Mr Belchamber will further outline our case and introduce our witness evidence.

 

ACTU Assistant Secretary, Greg Combet