Saturday, July 7, 2012

Minimum Wage Claims: Has ACCI or the ACTU Been Closer?

Each year for the annual minimum wage reviews in Australia, a range of groups put in claims for what they believe minimum wages should be increased by, including the Australian Council of Trade Unions (the ACTU) and the Australian Chamber of Commerce and Industry (ACCI). Typically the ACTU’s claim is above the eventual increase in minimum wages, and ACCI’s claim is below the eventual increase. But which of these groups has been closer to the eventual outcome?

(Of course there are many other claims from other parties for annual wage reviews, but for the purposes of this post I am just going to focus on ACCI and the ACTU. Also, if I restrict the focus to those groups then I can just get the wage claims data from the Australian Financial Reviewwebsite rather than having to look it up myself!)   

Below is a graph of ACCI’s and the ACTU’s claims for the increase in the federal/national minimum wage for each year since 1997. Note that ACCI did not actually propose a figure in 2006 and 2008. For 2006 I have assumed a figure of $12.50; this was their claim in 2010, when there also had not been a minimum wage increase for over a year. For 2008 I assumed a figure of $10, which has been a common claim made by ACCI over the past decade. These were NOT the claims made by ACCI in either of these years; however given that the eventual increases in 2006 and 2008 were both well above the amount that ACCI typically seeks removing these years would skew the results.

To see whose claims have been closer to the actual outcomes, we can take the average absolute deviation of the claims from the actual outcomes since 1997. For the ACTU the average absolute deviation has been $10.11, and for ACCI it has been $10.92. Therefore, the ACTU’s wage claims have, on average, been slightly closer to the actual minimum wage increase than ACCI’s wage claims. If we take away 2006 and 2008, for which I have assumed “claims” for ACCI, then the average deviation is slightly lower for ACCI than for the ACTU (however, as mentioned above the outcomes were much higher in these years than the increases that ACCI typically seeks.)
Unsurprisingly, if one takes the average of the ACCI and ACTU claims for each year, the average deviation is much smaller (see graph below).

Using this average is a pretty good explanatory variable for the actual minimum wage increases each year. However, one should be careful not to make too much of this; since both series have been trending upwards over time (as wages and prices increase), this would increase the apparent explanatory power. The correlation between the two series is actually pretty low, particularly during the period in which the Australian Industrial Relations Commission set minimum wages (1997 to 2005).

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