The 2013 Annual Wage Review and the Higher Award Classifications

I’ve written quite a bit about minimum/award wages on this blog in recent months, but here’s one more post about the topic anyway. Submissions for this year’s national annual wage review in Australia are due next week, and I want to enjoy my freedom this year to say something about it. I was saying to my wife this morning that I could actually put in a submission to the annual wage review if I wanted to, but I don’t think I’ll bother! First, I quite like my former colleagues, and I don’t want to add to their already busy work schedules. And second, if I put in a submission it would have the air of being ‘Troy Wheatley’s Official View’, whereas I really only have some loose thoughts about the topic. Given this blog is pretty much a collection of my loose thoughts I’ll talk about it here instead.

Anyway, for me, the actual increase this year is not so interesting – though obviously it matters a lot to the people it affects! – those people who follow these things from year to year can probably make as good a guess as me about what is likely to happen. For me, the interesting part is whether the Fair Work Commission will continue to award percentage increases. The Australian system is fairly unusual in that we don’t just have a minimum wage, but a series of minimum wages in awards that, in theory, provide for higher minimum wages for higher skilled employees. For the past couple of decades though, all wages in awards have been adjusted by a ‘flat dollar’ amount (e.g. $20 per week), which means that the ratios of minimum wages at the higher award classifications compared with minimum wages at the lower award classifications have been decreasing (Chart 9.1 in FWC’s statistical reporting provides an illustration of this). But this has changed in the past couple of years, with all award wages being adjusted by the same percentage amount, hence maintaining the relativities between those wages.

One possible justification that has been used for compressing the relativities between award wages is that minimum wages are mainly there to protect the incomes of the lowest-skilled employees. Adjusting these higher award wages by a smaller percentage than the lower award wages could be seen as a ‘passive’ way of phasing the higher award wages out. And yet, there are still people that are reliant on these higher award wages: why is this so?

One of the research reports that the Fair Work Commission released this year, by Maltman and Dunn, investigates the various factors that lead to award reliance at higher classifications. What they found was that, amongst employees on the higher award rates, the need to pursue a higher wage than the award rate was influenced by how reliant these people were on their wage to meet their living costs (or improve their lifestyle). Some people appear to be content to maintain employment at the award wage, and in some cases they perceived advantages from doing so. Other factors that influence the willingness of employees to seek an over-award wage include their perceived willingness for employers to engage in discussion on the topic, and their perceived chances of securing alternative employment.

It will be interesting to see how these findings affect the Fair Work Commission’s views on maintaining the relative values of the higher award rates. Do you not worry too much about maintaining their relative values because it might be that typically those people that stay on the higher award rates are not all that concerned about their wage income? Or do you take the view that there are still, at any given time, people that are heavily reliant on those wages to maintain a ‘decent’ lifestyle? Is more evidence needed? I have my own guess about what the Commission will do, but I guess we’ll find out in a couple of months.

(OK, now I’ll move on to other topics …)