Introduction and Overview
- The picture of the Australian labour market is overwhelmingly positive but for the one thing that this Review has a direct impact upon – wages.
- The sustained period of wage stagnation that Australians are experiencing is remarkable and has coexisted with historically-high levels of inequality and declining living standards. If recent declines in economic growth and forecasts thereof are any indication, the strain felt by working Australia is spreading.
- In its decision last year, the Panel took what in relative terms was a significant step to improve employees’ wages, which has had some positive effect in lifting living standards. It does not appear to have had any negative effects. This year, we urge the Panel to take further meaningful action to benefit working people and their families.
- In the next Chapter, we outline the claim we make on behalf of our affiliate unions and the workers they represent to raise the minimum wage and modern award minimum wages. The remainder of our submission seeks to address the elements of the modern awards objective and the minimum wage objective so as to satisfy the Panel that our claim is fair, relevant, necessary and appropriate. The observations from our review of the applicable social and economic criteria are as follows:
a. There are 2.23 million Australian workers, 21.0% of all employed persons (including OMIEs ), who are reliant on the National Minimum Wage or a modern award for their wages, according to the most recent data of May 2018. These data mean that more than one in five employed persons in Australia continue to be paid the lowest wage that they may legally be paid. A majority of those persons would have those wages determined in the Federal System, through the decisions of the Panel. Many of these employees lack bargaining power, and rely on the increases determined by the Panel to improve their living standards.
b. Compared with other workers, these workers are also more likely to be women, more likely to be part-time, more likely to be casual and more likely to work in a small business. More than 60% of these workers were employed in four industries: Health care & social assistance, accommodation & food services, retail trade and administrative & support services. However, significant numbers of workers affected by the Panel’s decisions are found across a multitude of occupational classifications. We estimate that around 44% of them are paid at or below the rate set for a person with trade-level qualifications.
c. Estimates of the gender pay gap across all employees vary between less than 15% to over 30% depending on the measure used. However, there has been little movement within those measures compared to two decades ago, with small improvements that have been seen to likely be largely due to stagnant male earnings. Ultimately, a larger increase to minimum wages is likely to bite into the premium received by employees on individual arrangements above the award and some cases drive those workers at the margin back to the award only category. This would be expected to have an equalising effect on the hourly earnings between men and women and should be pursued.
d. The overall picture of the labour market is inconsistent with a view that the Panel’s decision last year – to raise minimum wages and modern award minimum wages to a degree not seen in nearly a decade – inhibited employment through reducing the demand for labour. Indeed, recent research findings are consistent with the view that a negative effect on employment would not be expected to be seen at that, or indeed higher, rates of increase.
e. Continued strong employment growth has been observed since the last review, coupled with sustained and historically high participation rates and employment to population ratios including among those of working age. Notably, growth in employment and participation has also been seen in the youth labour market, which bears consideration when looking at unemployment among that cohort because it is often considered particularly sensitive to minimum wage rises.
f. There has been a continued, albeit slow, reduction in the unemployment rate since July 2017, which is particularly positive again given the prevailing participation rate and employment to population ratio. While underemployment remains high, it has improved a little over the course of the last 18 months or so. As discussed in Chapter 5, we suspect that some long-term trends in the composition of, and participation in, the youth cohort of the labour force may have contributed as a supply side factor in the high underemployment rate seen in recent years.
g. The small declines seen in hours worked in some industries need to be balanced against the gains seen overall and the general health of the labour market and the economy generally, which continues to manifest resilience, along with a renewal of mining activity.
h. The Australian economy grew by 2.3% over the year to December 2018. Although lower than Treasury and RBA forecasts, GDP growth continues to be healthy and certainly not unusual, when viewed in perspective. The current rate of growth is in line with previous years’ results of 2.4% at December 2016, 2.7% at December 2015, 2.2% at December 2014 and 2.4% at December 2013. It is also just below the OECD average growth of 2.4% on year-to-December figures.
i. Growth in output was also broad-based, with all of the five most award-reliant industries in 2018 recording growth albeit not at uniform levels.
j. CPI has remained at very low levels, but real wage growth has been weak, notwithstanding. Lower-paid workers are disproportionately exposed to some CPI subgroups which align with essential expenditure, which have risen in price much faster than the headline CPI figure.
k. Wage growth continues to drag behind labour productivity growth according to a range of measures. Labour productivity annual measures grew a little faster at the most recent year than their 10-year average, and, in general, wage growth continues to fail to keep up.
l. Real unit labour costs fell 1.4% over the year 2018. The share of employee compensation remains the same at December 2018 as it was at December 2017 while the share of wages in income has fallen in most sectors in 2017-2018. Real unit labour costs are a striking 11 percentage points below 1998.
m. Whilst there are downside risks in the economy related to trade and political tensions, the more tangible and predictable risks are closer to home in the form of poor growth in wages. In real terms, in the year to December, households annual final consumption grew 2% and household’s annual real disposable incomes rose 1.5%. The household savings ratio is below that seen for most of the decade and the household debt to income ratio continues to rise. The growth in average annual compensation per employee in real terms was -0.3% over the year to December 2018 and has been negative for three years. The data on consumption, savings and debt suggest that pressures have been building on households which, in the absence of meaningful real income gains, could lead to poorer consumption and a diminished ability to absorb economic shocks. The knock on effects of this may already be evident in recent retail turnover figures, although it is perhaps too soon to say definitively.
n. The relative living standards of workers reliant on minimum and award wages have declined for over thirty years, yielding a far more unequal society in which the top quintile now accrues nearly half of gross income. Wages disparity has widened across the distribution and compared with the minimum wage, over the last 22 years. Weak wage growth in the last three years has delivered the biggest fall in living standards for more than 30 years, with more than a million people now forced to work more than one job.
o. The median minimum wage bite remains close to its all time low having declined overall for thirty years. Regardless of sensitivity of the measured increases to the starting date for the calculation, the National Minimum Wage and median earnings have seriously lagged behind GDP and GDP per capita in terms of growth over decades, much more so in the case of the National Minimum Wage. A substantial proportion of workers on the National Minimum Wage and modern award rates of pay are in households at or below very conservative poverty lines.
p. Meanwhile, profits in mining and non-mining industries have continued to rise, particularly to the September quarter. Although profits slowed in non-mining industries in the year to December, the levels seen are still above those seen for most of the decade in December-December comparisons. Profit margins in small business continue to grow faster than for bigger business and yet small business has a much bigger proportion of award-reliant workers who have seen above WPI wage increases in recent years.
q. Business bankruptcies were fewer in 2017-18 than any year since 1994-95. The number of businesses overall grew by 3.4% in 2017-18, with entry rates exceeding exit rates over the last three years.
r. Non-mining private business investment has stabilised at levels above the highs seen in 2011 immediately before the decline.
s. Whilst it is undoubtedly correct that there has been a decline in enterprise bargaining, it cannot be shown that this bears any relationship to the decisions of the Panel to increase the minimum wage or modern award minimum wages. More instructive is the relatively stable or increasing share of the workforce paid according to “individual arrangements” at above award rates. This suggests that maintaining a premium above the ever increasing minimum wage and modern award minimum wages has not been a burden for employers at the macro level.
t. Regulatory changes over the last decade and beyond have made measurement of enterprise bargaining and the share of workers covered by various methods of pay difficult. Whilst we concur with the view that changes in the bargaining power of workers as a result of such regulatory changes have contributed to the observed decline, it is likely that there is some overhang effect from transitional regulatory changes that has made the observed decline in enterprise bargaining seem more severe than was truly the case. This is because the preceding observed increase in bargaining was not representative of the various dynamics observed in bargaining in the ordinary course. Secondly, the measurement of award or collective agreement reliance has also been affected by regulatory change and the categorisation of particular instruments as “awards” or “collective agreements” has not necessarily been what might have been expected.
- Low-paid workers deserve to share in the benefits of productivity growth and a growing economy. The expected wage increases that have often been forecast to be just around the corner have failed to materialise, save where they have been mandated through the decisions of the Panel or collective bargaining outcomes.
6. The increase we seek is appropriate and reasonable in the economic circumstances. A substantial real increase in wages will not have adverse consequences, rather it is likely to contribute to improvement in the economy. Other workers will also likely benefit from a decent increase in the minimum wage.