Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper Chair Australian Fair Pay Commission 23 July 200

1. Setting Australia’s minimum wages: 2007 and beyond Professor Ian Harper Chair Australian Fair Pay Commission 23 July 2007

2. A new approach to setting minimum wages • AFPC — a new economic institution • From an adversarial system to a consultative one, supplemented by independent research and analysis • For the first time, those affected by the Commission’s decisions can have a direct say in what minimum wages should be • Minimum wage-setting added to mix of policy instruments focussed on the national economy

3. A focus on jobs • Like interest rates, minimum wages influence important decisions in our economy • they can affect employment (especially for the low paid), the rate of inflation and competitiveness of the Australian economy • minimum wages can affect labour supply as well as labour demand • Workforce participation — one of the key drivers of our future economic prosperity • Having a job is widely recognised as a guard against poverty and disadvantage

4. Remit • The Commission exercises its wage-setting powers by: • adjusting the standard Federal Minimum Wage (FMW) • determining or adjusting special FMWs (e.g., for workers with a disability) • determining or adjusting basic periodic rates of pay in the Australian Pay and Classification Scales (the “Pay Scales”) • determining or adjusting basic piece rates of pay • determining or adjusting casual loadings

5. Objective and constraints • The Commission’s objective specified in legislation is to promote the economic prosperity of the people of Australia • In exercising its powers, the Commission must have regard to: • the capacity for the unemployed and low paid to obtain and remain in employment; • employment and competitiveness across the economy; • providing a safety net for the low paid; and • providing minimum wages for junior employees, employees to whom training arrangements apply and employees with a disability that ensure those employees are competitive in the labour market

6. 2007 Minimum Wage Decision • Submissions called 1 December 2006 • Submissions closed 30 March 2007 • Decision announced 5 July 2007 • Implementation 1 October 2007 (first pay date on or after)

7. The 2007 Minimum Wage Decision • An increase of: • $10.26 per week for people earning up to $700 per week • covers 850,000 Australian workers - about 8% of the workforce • $5.32 per week for people earning $700 per week and above • represents another 350,000 workers or a further 3% of the workforce Increases flow on to junior employees, employees to whom training arrangements apply and employees with a disability

8. Key considerations • Establishes mid-year timetable for reviews going forward • A second real wage increase for Australia’s lowest paid • Commission concerned about impacts on inflation, jobs and interest rates • Maintains social safety net and incentives to seek and remain in employment • Recognises impact of most severe drought in more than a century

9. Deferral granted for farm businesses • Farm businesses must be in receipt of Exceptional Circumstances Interest Rate Subsidy (ECIRS) • Farm business in receipt of an ECIRS are: • those most severely affected by drought • most likely to suffer detriment from increases in labour costs at this time, resulting in job losses • Deferral for a maximum of 12 months or until a farm business ceases to qualify for ECIRS, whichever comes first • Not applicable to FMW or special FMWs

10. Real wage increases across two decisions Both the 2006 and 2007 decisions provide real wage increases to Australia’s lowest paid * Forecast from December 2006 to October 2007

11. Lower EMTRs Low-paid Australians face lower EMTRs following the 2007/8 Budget. On average, they retain 74% of any increase compared to 70% in 2006.

12. Disposable income Disposable income for those ‘Out of work’ and at 100% and 150% of the standard FMW, July 2007

13. Henderson Poverty Line (HPLs) Standard FMW well above HPL for all household types

14. A balancing act • The Commission took into account: • 10-month period since the last pay increase • the sensitivity of low-paid employment to changes in wage levels • incentives for individuals to seek and remain in paid employment • • continued strong performance of the economy and labour market (albeit not uniform) • • movements in consumer prices • • requirement to provide a safety net for the low paid

15. Who are the low-paid? • Lower-paid workers as a group (both FT and PT) are relatively concentrated in lower-income households • But 20 per cent of low-paid employees live in households in the top three deciles of the income distribution • Many low-paid workers are either: • partnered to people earning above minimum wages; or • single people living with other employed people (e.g., young people living at home with their parents)

16. Characteristics of low-paid workers • Low-paid adult workers are more likely than the general workforce to have the following characteristics … • employed in relatively low-skilled occupations • lower levels of education • relatively young (21 to 24) • female • not married • low equivalent household disposable income • employed on a casual basis • migrants from a non-English speaking background

17. Award- or Pay Scale-reliant industries • Accommodation, cafes & restaurants (37.6%) • Retail Trade (19.1%) • Property and Business Services (18.2%) • Health and Community Services (12.8%) • Personal and Other Services (12.3%) • Source: ABS Employee Earnings and Hours Survey, unpublished data

18. Consultation (1) – 2007 • The Commission has: • established a Business Consultative Group • implemented a Research Consultative Group • formed specialist Roundtables (e.g., for workers with a disability) • commissioned research into stakeholder responses to the Commission’s procedures and 2006 Decision • conducted face-to-face meetings with key stakeholder representatives

19. Consultation (2) – 2007 • Program of targeted focus groups in metropolitan and regional areas across Australia speaking to: • Low paid Employers • Juniors Unemployed • Indigenous Culturally and Linguistically Diverse • Internet ‘bulletin boards’ • national facilitated discussion groups • Site visits

20. Submissions (1) – 2007 • National submissions campaign implemented: • posters and brochures encouraging community submissions distributed to more than 7000 community locations across Australia including: • local libraries • local Councils • community centres • neighbourhood houses • job network providers and • community legal services • Online submission form developed and available at www.fairpay.gov.au

21. Submissions (2) – 2007 • Commission received 62 submissions: • employer organisations 23 • employee organisations 6 • community organisations 11 • individuals 10 • businesses 3 • professional/education 3 • government agencies 6

22. Commissioned research • 2006: • minimum wages and employment • characteristics of low-paid employees • characteristics of employers of the low paid • interactions between minimum wages and the tax/transfer system • 2007: • monitoring strategy to determine impact of 2006 Decision • economic and social circumstances of young people aged 15-20

23. Monitoring strategy • Two research projects commissioned: • identify relevant existing data and how these should be used to monitor wage decisions • analyse the impact of our decisions at an aggregate as well as an industry, regional and (in some cases) workplace level • provide tools to identify emerging trends in employment and wages

24. Pay scales • pre-Work Choices awards contained all minimum rates of pay and conditions of employment and ratified and published by AIRC • currently 3,286 awards and approx 105,000 Pay Scales • many awards and Pay Scales are redundant • government has been publishing Pay Scale summaries since Commission’s first decision • process to create and publish new Pay Scales agreed and commenced

25. Process to create and publish new pay scales

26. Pay scales - rationalisation • Commission to look into rationalisation of pay scales • Discussion paper released in September • incorporate review of wages for juniors and trainees • follows Award Review Taskforce report • What principles should guide the AFPC? • How important are pay scales in securing economic prosperity for the Australian people? • What role should rationalised pay scales play in a modern, flexible labour market?

27. What type of organisation? • a focus on unemployed and low-paid Australians and their employers • decisions are evidence-based, informed and balanced • procedures are open, transparent and independent • emphasis on research and analysis • a respected authority on the link between employment and minimum wages in an Australian context • to earn public respect and professional standing equivalent to the Reserve Bank of Australia