Today, the Fair Work Commission announced that, as a result
of its 2013
Annual Wage Review, minimum wages in awards would increase by 2.6 per cent
on the first full pay period after 1 July 2013. Similar to the post-game NBA Rapid
Reactions I read over at the ESPN website, here are my first thoughts about
the Commission’s decision. Views are obviously my own – while I did work at
Fair Work Australia in the past, it has been a year since I left, and so I can
say I had absolutely bupkis to do with this Annual Wage Review.
- As it did in 2011 and 2012, the Minimum Wage Panel at FWC
increased all minimum wages in awards by the same percentage amount (as opposed
to the same dollar amount). This means the ratios of the higher award rates of
pay to the lower award rates of pay remain the same. Back in March, I wondered
if the Panel would continue this practice, and said it would be interesting
to see how the recent
research on award-reliant employees on higher rates of pay would affect the
Panel’s views. But as far as I can see that
research isn’t mentioned in the latest decision, and contrary to its past two
decisions, the Panel doesn’t discuss why it chose one form of adjustment over
the other. On that basis, it appears that, while the Panel is charged with
adjusting minimum wages, percentage increases to minimum wages have a greater
look of permanency.
-The superannuation guarantee rate will increase each year
up to 2019. The Panel say at paragraph 360 that ‘the increase in modern award
minimum wages and the [national minimum wage] we have awarded in this Review is
lower than it otherwise would have been in the absence of the [superannuation guarantee]
rate increase’. But it has not applied a ‘direct, quantifiable, discount’ (para.
359), contrary to some parties’ proposals. Nevertheless, one would expect that,
even if there was an explicit ‘discount’, it would be no more than 0.25 per
cent, which is the increase per year in the superannuation guarantee rate in
both 2013 and 2014. That suggests that, even if the Panel had ignored the
increase in the SG rate, the minimum wage increase would still be lower than 3
per cent.
- The 2.6 per cent increase is just higher than the consumer
price inflation figure over the year to the March quarter 2013 of 2.5 per cent.
Over the same period the increase in the living cost index for employee
households – which account for changes in interest charges – was 1.7 per cent. The Reserve Bank of Australia forecasts
consumer price inflation over the year to June 2014 of 2-3 per cent. So the
increase in minimum wages is broadly in line with both past and expected changes
in the cost of living. But as I noted a few months back, if minimum wages just
move in line with living costs we would expect that, in the long-run, the
gap between minimum wages and wages in the rest of the market will further
increase, as long as labour productivity is growing.
- The Panel make note of the growing gap between minimum
wages and wages in the rest of the market, saying that it may have implications
for the economy and social cohesion (para. 425). That concern for social cohesion may or may not be well-founded –
the minimum wage is still above 50 per cent of median earnings – but minimum
wage growth has certainly been outpaced by growth in median and average
earnings over recent years. The Panel notes that the tax-transfer system can
play a role in alleviating the impact of earnings inequality (para. 426), and
asks parties to give consideration as to how the tax-transfer system should be
taken into account in minimum wage fixation in next year’s review. Nevertheless,
even if one saw changes in the tax-transfer system that raise the disposable
incomes of low-paid households as a perfect substitute for changes in minimum
wages paragraph 395 shows that minimum wage households have still been
receiving lower increases in income than other households over the past decade.
- Something a little weird: in paragraph 40, the Panel says
that ‘this Review has not convinced the Panel to alter its position from
previous reviews that a modest increase in minimum wages has a very small, or
even zero, effect on employment’. But if that is the case, why have a minimum
wage increase that is so far below the average increase in wages if the growing
gap is possibly a concern? Now I’m not personally saying that minimum wages
don’t have a significant effect on employment, but that is what FWC are saying,
and therefore by its own logic, it seems a little weird that it is so cautious.
Left as it is, it seems like there is some unstated reason why the Panel has
gone for a sub-3 per cent increase.
Those are my initial thoughts – the last two points in
particular seem to me to indicate that FWC has awarded a lower increase than
its own arguments would suggest. Its discussion of a ‘favourable’ economic outlook
(paras. 320, 332) lends further weight to this. Perhaps the Panel’s true train
of thought was that it had awarded a 2.9 per cent increase in 2012, and
economic conditions are generally considered to have deteriorated since then so
it had to go lower this year. But that’s purely speculation. Until next year …
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