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PR517718 |
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FAIR WORK AUSTRALIA |
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REPORT |
Fair Work Act 2009
s.290—Annual wage reviews
Measuring the Needs of the Low Paid
Report to the Minimum Wage Panel
SENIOR DEPUTY PRESIDENT WATSON |
MELBOURNE, 14 DECEMBER 2011 |
Contents |
Abbreviations
ABS |
Australian Bureau of Statistics |
ACCER |
Australian Catholic Council for Employment Relations |
ACCI |
Australian Chamber of Commerce and Industry |
ACOSS |
Australian Council of Social Service |
ACTU |
Australian Council of Trade Unions |
Ai Group |
Australian Industry Group |
AIER |
Australian Institute of Employment Rights |
ALCI |
Analytical Living Cost Index |
ARC |
Australian Research Council |
CPI |
Consumer Price Index |
Fair Work Act |
Fair Work Act 2009 |
GSS |
General Social Survey |
HES |
Household Expenditure Survey |
HES |
Household Expenditure Survey |
HILDA Survey |
Household, Income and Labour Dynamics in Australia Survey |
HPL |
Henderson Poverty Line |
Panel |
Minimum Wage Panel of Fair Work Australia |
SPRC |
Social Policy Research Centre |
[1] In its Annual Wage Review 2010–11 decision, the Minimum Wage Panel of Fair Work Australia (the Panel) stated that:
“While there is a reasonable level of agreement on the relevant indicators of relative wages and living standards, there is no consensus on how to measure and assess the needs of the low paid. Some parties have called for a program of research and consultations to inform the Panel in this regard. We would welcome the considered views of interested parties on what were the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing. The Fair Work Australia Research Report 2/2011 provides a useful starting point. One or more members of the Panel will consult with any interested parties and provide a report under s.290 of the Fair Work Act.” 1
[2] On 30 September 2011, the President directed us to consult interested parties on the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing, and to prepare a report for the Panel under s.290 of the Fair Work Act 2009 (Fair Work Act).
[3] In undertaking its annual wage review functions, the Panel is required to have regard to the minimum wages objective in s.284 and the modern awards objective in s.134 of the Fair Work Act, including in each case, “relative living standards and the needs of the low paid”. The decision by the Panel in the Annual Wage Review 2010–11 to have us conduct consultations and report to it on what are the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing was directed to seeking out the considered views of interested parties, any level of consensus about relevant measures and any possibilities of further research to better inform the Panel in relation to the needs of the low paid. The reference to us was not intended to elevate, nor did it have the effect of elevating, the statutory consideration of the relative living standards and the needs of the low paid above any other statutory consideration which the Panel is required to have regard to in reaching its decisions in the annual wage review.
[4] Soon after the direction by the President, we announced a process for the report to be prepared on the Fair Work Australia Annual Wage Review 2011–12 website, 2 with advice of the posting made to those persons and organisations which had registered an interest in the annual wage review. The process involved:
● the filing of written submissions by interested parties by 28 October 2011, and
● consultations between us and interested parties in Melbourne, with a video-link to Sydney (later extended to Brisbane and Canberra) on 4 November 2011.
[5] We also announced on the website that Professor Peter Saunders had been invited to participate to act as a knowledgeable resource, able to advise on the strengths and weaknesses of many of the alternative ways of measuring needs and deprivation.
[6] The consultations of 4 November were attended by representatives of the Australian Chamber of Commerce and Industry (ACCI), the Australian Catholic Council for Employment Relations (ACCER), the Australian Council of Social Service (ACOSS), the Australian Council of Trade Unions (ACTU), the Australian Government, the Australian Institute of Employment Rights (AIER), the Australian Industry Group (Ai Group) and Professor Saunders.
[7] Those who participated in the consultations contributed in a constructive and positive manner, which allowed a productive discussion about the issues concerning the measurement of the needs of the low paid. We are grateful for the positive approach of each of the participants.
[8] Written submissions were received from ACCI, ACCER, ACOSS, ACTU, the Australian Government and AIER. Those submissions are summarised in an attachment to this report and are available on the Fair Work Australia Annual Wage Review 2011–12 website. 3
2. Measures of the Needs of the Low Paid
[9] The focus of the consultations, and our report, is “the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing”, consistent with the referral by the President under s.290 of the Fair Work Act. It was accepted in the consultations that the definition of the low paid was beyond the scope of the reference and is an issue about which there is no consensus among the parties and other commentators. It is accepted that the differing perspectives of the parties as to the definition of the low paid will be reflected in their submissions to annual wage reviews.
[10] It was broadly accepted that there is no single measure of the needs of the low paid on which the Panel can rely. The Panel should, therefore, have regard to a variety of measures and exercise an overall judgment based on the range of information provided by the available measures, having regard to the measures’ strengths and weaknesses and the circumstances of the time.
[11] As noted by Professor Saunders, it is important to distinguish between identifying needs and establishing the extent to which they are met. Budget standards were the only approach suggested for establishing how much income was needed by different types of families to obtain a pre-determined standard of living. There was no consensus on what that standard of living should be for minimum wage earners, except that it should exceed “poverty” levels.
[12] In contrast, there are a variety of ways to measure whether needs are being met, none of which can be relied upon on its own. Most measures compare the circumstances of the low paid with a benchmark of adequacy. Guidance can be obtained from measures which assess the extent to which the living standards of low-paid workers are being met and from time series data which measure the changes in living standards over time. This requires regular and consistent data on the standards of living and deprivation.
[13] We note that there is a distinction to be drawn between data showing circumstances at a point of time and data showing changes in a measure over time. Both forms of information are useful and necessary, with changes in a measure recording a changing ability to meet needs.
[14] Measures considered in the consultations were based on income, expenditure and outcome.
[15] The budget standards approach estimates what is needed, in terms of material goods and services, by a particular type of family to achieve a particular standard of living. This method articulates a standard of living in terms of consumption and activity patterns, and specifies the needs that must be met in order to maintain that standard. It then identifies and prices the basket of goods and services required to meet those needs, thereby producing the total family budget needed to achieve that particular standard. The items in the relevant basket of goods are chosen by those developing the budget standards.
[16] The budget standards measures relied upon in Australia were developed by the Social Policy Research Centre (SPRC) in 1997. Two separate indicative budget standards were developed—a “low-cost” standard and a “modest but adequate” standard. As with all income benchmarks, budget standards need to be updated over time if they are to remain relevant and contemporary. This poses particular challenges, since the standards are based on changing community consumption norms, in the context of rising average community living standards. The original study recommended that simple Consumer Price Index (CPI) based adjustment would suffice for no longer than five years, individual items should be repriced at least every five years and the budgets should be reformulated at least every seven to 10 years. No reformulation of the budgets has occurred.
[17] There was widespread support for budget standards measures as an effective means of measuring the needs of the low paid. It was noted that budget standards were the only measure raised throughout the consultation process which attempts to identify needs and, conceptually, they provide a bridge between needs and income. They do have limitations, including that the lists of items that are included in the relevant “basket” are both very detailed and somewhat arbitrary, and do not adequately reflect substitution strategies that households use as they choose how to make the best use of their income. In the consultations, it was widely accepted that the 1997 SPRC study has passed its use-by date as a base for updating data. Updated measures of budget standards derived from the 1997 study were not seen to provide useful contemporary information about the needs of the low paid.
[18] Professor Saunders advised that a proposal was about to be submitted to the Australian Research Council (ARC) for updating budget standards, with the support of three organisations. The proposal was that budget standards would be constructed for a smaller group of households than in the original research, reflect lessons learnt from the original SPRC study and the proposed new research would specifically address the needs of the low paid. However, no new estimates would be available until 2013 and the grant may not be funded by the ARC.
[19] Professor Saunders also advised that the new study, if funded, would address more effective measures for updating the base measures derived. He suggested that a method for updating the standards that would avoid frequently re-calculating the budgets themselves would be to “anchor” them to points in the distribution of income for particular household types. These anchor points could then be updated by the regular (biannual) Australian Bureau of Statistics (ABS) income distribution surveys. To this end, more work would need to be undertaken in identifying such anchor points. More work could also be undertaken to identify which components of the budget standards would need to be examined each year, or less frequently.
[20] ACCER suggested it might be useful if there was an opportunity for criticisms of the budget standards to be raised by interested parties and fed into Professor Saunders’ work, independent of the processes of the current annual wage review. Professor Saunders said this was a helpful suggestion, and he was open to receiving and considering such suggestions.
[21] A principal obstacle to the use of budget standards in determining the needs of the low paid is that there is no regular collection of the necessary information. Other concerns include the choice of which level of living is appropriate for minimum wage earners and how to treat housing and childcare costs.
Henderson Poverty Line
[22] The Henderson Poverty Line (HPL) was first developed in 1964 as part of a study of poverty by researchers from the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The study set a basic poverty line for a reference family of two adults (one employed) and two children, and consisted of the minimum income available to a family with one worker receiving exactly the basic wage, i.e. the basic wage plus child endowment. Poverty lines for income units of other sizes and compositions were derived by applying a set of equivalence scales adopted from a budget standards study undertaken in New York in 1954. Regular quarterly updates of the HPLs are published by the Melbourne Institute using (from 1981 onwards) estimated household disposable income per head.
[23] There has been both support for and reservations about the concept behind the HPL as an indicator of the needs of the low paid. ACOSS contended that HPLs have the advantage that they take account of costs of working and job seeking, provide a living costs measure and are grounded in a basic wage. The ACTU contended that the HPLs raise difficult issues in relation to household composition, the interrelationship between minimum wages and transfer/support payments, and are addressed to poverty rather than the needs of the low paid.
[24] However, there was general agreement that HPL information, based on the original 1960s study, is now outdated and cannot be relied upon in a contemporary Australian context. Whilst ACOSS and Professor Saunders suggested that there may be value in exploring whether the HPL could be modernised and “Australianised” by incorporating other research (e.g. in relation to child care) and grounding the measure against contemporary Australian budget standards and deprivation surveys. However, there is no indication that such a modernisation of the HPLs is in prospect.
[25] With the exception of ACCER, there was no support for the current HPL, as updated by the Melbourne Institute, as a contemporary indicator of the needs of the low paid.
Poverty lines expressed as a percentage of median income
[26] Poverty lines can also be expressed as a proportion of overall median or average (mean) household disposable income. Commonly used poverty lines are 50 or 60 per cent of median income, and 50 per cent of mean income. Poverty lines based on median income link the concept of poverty to what is happening in the middle of the income distribution; while poverty lines based on mean income link it to the average income across the population. The disposable incomes of illustrative award-dependent households can then be benchmarked against those poverty lines, providing a comparison of the relative position of award-dependent households. The gap between the poverty lines and the disposable incomes of minimum wage workers’ households provides, at best, a broad indicator of the extent to which needs of the award reliant are met. Both the ACTU and ACOSS were concerned that the needs of the low paid not be conflated with poverty.
Position in the distribution of income
[27] Changes in the position of low-paid households and individuals in the distribution of income and of wages provide useful information on how the low paid are faring relative to other working households. ACOSS in particular supported the regular provision of such information.
2.4 Expenditure-based measures
[28] Measures reflecting levels of expenditure can also be considered for guidance as they can identify levels of spending between different groups as a proxy measure of material living standards. Relevant information is provided in the comprehensive ABS Household Expenditure Survey (HES), albeit once every six years. The Household, Income and Labour Dynamics in Australia (HILDA) Survey, a major longitudinal social survey funded by the Department of Families, Housing, Community Services and Indigenous Affairs, collects information annually on a selection of household expenditures. The HILDA Survey covers a narrower range of expenditure data than the HES data, which covers the whole of expenditure by households on goods and services used for private purposes.
[29] We note that the Fair Work Australia draft research program, published in a statement on 24 October 2011 4 includes a statistical analysis of the expenditure patterns of low-paid workers in which the Minimum Wages and Research Branch of Fair Work Australia will report on the expenditure patterns of households with low-paid workers using data from the HES for 2009–10. These will be compared to the expenditure patterns of other types of households, including households with workers on higher pay.
[30] As with budget standards, a main obstacle to the use of expenditure data is the infrequent collection of comprehensive information—once every six years for the HES. For the years immediately following each HES, the comparison of expenditure levels by the HILDA Survey of low-paid households with relevant benchmarks remains a useful indicator.
[31] Financial stress and deprivation measures provide direct information about the adequacy of income to meet needs. There are a number of different indicators of financial stress, such as being unable to pay bills on time, missing meals or asking for help from community or welfare organisations. Such questions have been included in a number of ABS surveys, including the General Social Survey (GSS), which is conducted every four years, the HES, which is published every six years and annually in the longitudinal HILDA Survey, which is managed by the Melbourne Institute.
[32] A related approach focuses on deprivation more broadly and not just on financial stress. People are asked if they go without certain purchases or activities because they cannot afford them. Examples are sending children on school excursions, filling medical prescriptions, or paying one’s way when out with friends. The list of activities is usually developed from population surveys that ask what people living in Australia should not have to go without. Some deprivation questions are asked in HILDA. In addition, the SPRC has collected data in 2006 and 2010 on financial stress and deprivation. It has used this to augment income-based definitions of poverty. However, it is not clear how regularly such a survey will be conducted in the future. As with most such work, the focus is on identifying those who are in poverty, rather than the needs of the low paid. The information provided needs to address specific groups, not the community as a whole, in order to provide information relevant for minimum wage fixation. It was noted that the scope of data collected in Australia is limited when compared to level of living surveys undertaken in the European Union, Sweden (the Swedish Level of Living Survey) and New Zealand (the General Social Survey).
[33] Deprivation and financial stress measures involve an element of subjectivity and measure not needs, but the degree to which needs are not being met. However, it was generally agreed that a suite of deprivation and financial stress measures can inform the annual wage review process in combination with other measures of the needs of the low paid. Their utility will be greatest when they provide regular and consistent information. At present, measures of financial stress are available every four years through the ABS GSS and each six years through the HES. To the extent that there is some overlap in questions asked in the GSS and HES, particularly in respect to cash flow problems, there may be some capacity to collect composite information across the two surveys on a limited basis. Measures of deprivation are not collected on a regular basis, other than in the HES each six years, and to date have relied on individual research projects.
2.6 Consumer Price Index/Analytical Living Cost Index
[34] Changes in the CPI and the Analytical Living Cost Index (ALCI) for employee households are measures of changes in prices and costs of living respectively for the Australian household sector. They are not specific to the low paid, although an ALCI for low-paid households could be created.
[35] The basis of these data is the measurement of changes in prices or changes in the cost of living, rather than the development of actual benchmarks of needs, and therefore changes in those needs. However, in addition to measuring changes in needs in a partial sense, these measures can be used to adjust other proxy measures or benchmarks of needs over time.
2.7 Issues with obtaining relevant data
[36] Over many years the Panel, and those previously responsible for minimum wage fixation, has been informed as to the needs of the low paid by the Melbourne Institute’s HPL and the SPRC’s budget standards studies. The conclusion that these have now lost their contemporary relevance led to discussion as to the sources of contemporary data which would better inform the annual wage review process. The budget standards project proposed by Professor Saunders if completed, will provide data that, for a while, is contemporary. However, it is evident that the collection of substantial primary data to enhance currently collected information or update now dated research, might require resources beyond the capacity of the Fair Work Australia research budget. It is not appropriate to rely on the ad hoc efforts of academic researchers, most helpful though they can be, particularly given the desirability of regular and consistent primary data. In addition, such research, as well as informing the annual wage review process, is likely to be useful for other public policy purposes and might be most expertly and conveniently undertaken by the ABS.
3. Statistical Report—2011–12 Annual Wage Review
[37] The following measures are already included in the statistical reporting for annual wage reviews:
● changes in the CPI and the ALCI for employee households
● real values of award classification rates, and
● award rates relative to measures of average/median earnings (though this may be considered more a measure of relative living standards).
[38] The following measures could be included in the statistical reporting for annual wage reviews:
● indicators of financial stress for low-paid employees from the annual HILDA Survey
● indicators of financial stress for low-paid employees from the GSS
● indicators of financial stress for low-paid employees from the HES in the years when contemporary data is available, and
● expenditure patterns of low-paid employees from the HES, updated every six years.
[39] The 31 March 2011 statistical report for the Annual Wage Review 2010–11 included a table in the section “Living standards benchmarks and measurement”. 5 It compared 60 per cent of median income “poverty lines” with the disposable income of 10 household types with various classification rates in the Manufacturing and Associated Industries and Occupations Award 2010,6 on the basis of the assumptions indicated. The table was not included in the statistical report as updated on 16 June 2011. During the consultations, the participants were asked if the table, updated as required, should be included in the statistical report for the Annual Wage Review 2011–12. The ACTU, ACOSS, ACCI, and AIER all agreed that it should and there were no objections from other parties. In the circumstances, we think the table should be included in the statistical report for the Annual Wage Review 2011–12, subject to the right of any party in the Annual Wage Review 2011–12 to put submissions as to its relevance and construction.
[40] The Panel should have regard to a range of relevant data in relation to the needs of the low paid, all of which needs to be considered and weighed up, with the exercise of appropriate judgment. These include the relative position of low-paid individuals and households in the distribution of earnings, of income and of expenditure, and levels of financial stress and deprivation. Changes in all of these indicators can also provide relevant information for the Panel’s consideration.
[41] The current HPL data and the SPRC budget standards data provide little guidance to the Panel because the original research upon which they are based lacks contemporary relevance. The proposed research project submitted to the ARC for updating budget standards will, if funded, provide valuable information when focused on the needs of the low paid so long as the information remains contemporary. Budget standards that are based on the needs of the low paid, rather than, for example, set at a level deemed appropriate for social welfare recipients, would be of most value to the work of the Panel. However, it is of concern that the availability of contemporary budget standards data is reliant upon the ad hoc efforts of academic researchers and there may be times, as is currently the case, when reliable contemporary data is not available.
[42] There is a widespread view that more regular and consistent primary data as to the needs of the low paid is required and, if available, would better inform the Panel.
SENIOR DEPUTY PRESIDENT WATSON |
PROFESSOR RICHARDSON |
Summary of Written Submissions
Submissions received
[1] Written submissions were received from:
● Australian Chamber of Commerce and Industry (ACCI)
● Australian Catholic Council for Employment Relations (ACCER)
● Australian Council of Social Service (ACOSS)
● Australian Council of Trade Unions (ACTU)
● Australian Government
● Australian Institute of Employment Rights (AIER).
Defining needs
[2] The Australian Government noted that “individual circumstances vary considerably, not only in terms of income and wealth, but also where individuals live and their consumption patterns”, 7 for example, housing may be cheaper in some locations.
[3] The Australian Government also noted that, besides minimum wages, “there are other significant policy instruments at work which affect the circumstances ... of low paid workers”, 8 including transfer payments and free or subsidised services.
[4] The ACTU submitted that it:
“... agrees with the finding of the Fair Work Australia Research Report 2/2011 that, as a concept, ‘needs’ is broader than material well-being, yet for the Panel’s purposes material wellbeing should be the focus. This suggests that, for these purposes, the ability of a low paid worker to meet his or her needs is dependent on the economic resources he or she controls – the consumption possibilities that are open to the individual. This is dependent on both the person’s wealth (the stock of economic resources) and income (the flow of resources acquired over a given period).” 9
[5] There is a focus in the ACTU submission on minimum wages being “sufficient to allow a worker to participate in and to belong to Australian contemporary society ... without relying on transfer payments from government ...” 10
[6] The ACTU also submitted that “[t]here is no clear distinction between ‘needs’ and ‘relative living standards’ [and the] needs of the low paid must be understood with reference to the living standards generally prevailing in the Australian community”. 11
[7] ACCI submitted “that to quantify the ‘needs’ of the low paid is a difficult task ... What one worker, in one household, under one modern award ... considers as sufficient to meet his or her needs, can be vastly different to another worker in the same situation or an entirely different situation”. 12
[8] ACOSS submitted that “[d]ecisions on the level of minimum wages should be informed by ‘benchmark’ estimates of the cost of attaining a ‘decent basic living standard’ for a single adult according to contemporary Australian standards”. 13
[9] The AIER submitted that the following matters should be considered in determining the measures (of needs):
“1. That which is required to sustain the ... worker as an individual
2. That which is required to sustain the worker’s household
3. The caring responsibilities of workers who are low paid
4. Disability or disadvantage which can be characteristics of low paid work
5. The generally precarious nature of low paid employment, the hallmark of which is often casual engagement
6. Living standards generally in the Australian community
7. The need to take account of Australia’s changing labour force and social context, for example, the growth of participation of women in the workforce without corresponding equitable outcomes
8. Allied to the previous point, the need for minimum standards to both lead and respond to change so that they do not become frozen in time
9. ILO [International Labour Organization] Conventions which identify the needs of workers and their families, the general level of wages in the country, the cost of living, Social Security benefits, the relative wellbeing standards of other social groups, economic factors [including economic development], levels of productivity and the desirability of maintaining a high level of employment.” 14
Questions to consider in measuring the needs of the low paid
[10] The ACTU submitted that the relevant group for comparison for the living standards of minimum wage workers is individuals or households who are employed, but the Panel may also wish to take account of working-age individuals and households more broadly. 15
[11] The ACTU agreed with the view that households are usually adopted as the unit of analysis, but that the focus should be on the income of individual workers, as Fair Work Australia sets minimum wages for individual workers, though this could be usefully supplemented by household-level analysis. 16
[12] The ACTU submitted that there is no “correct” equivalence scale for the purpose of equivalising the relative incomes of households, and that it has used the modified OECD equivalence scales in previous submissions. 17
[13] ACOSS submitted that:
“To the extent that resources are shared among household or family members, the most appropriate unit for measurement of living standards is the household or family ... However, if a single adult living alone is used as the benchmark family type then assumptions about resource sharing do not need to be made.” 18
[14] It also submitted that it is appropriate to compare the living standards of low-paid households with those of other households of working age. The reasons for this “include that minimum wages impact upon the labour market and also on policy decisions affecting the incomes of people of working age and their children (for example the level of unemployment benefits and family payments)”. 19
Defining and measuring low pay
[15] The ACTU submitted that:
“Low paid workers include, but are not limited to, all workers reliant on the Federal Minimum Wage (FMW) or on the minimum wages contained in awards. All workers reliant on award rates of pay or the FMW are the lowest paid workers in any given classification of work. Workers who are not directly reliant on the FMW or modern award wages, but nevertheless have low earnings relative to most employees, are also low paid.” 20
Measures
Henderson poverty line
[16] The Australian Government reiterated its view from its submission to the Annual Wage Review 2010–11 that “common income benchmarks such as the Henderson Poverty Line, Budget Standards and relative [poverty lines] living standards have their limitations, are subjective and do not reflect individuals’ circumstances well”. 21
[17] ACOSS outlined a range of pros and cons for poverty lines, 22 and while it is clear that they were intended to apply to relative poverty lines, it is not clear if they were also intended to apply to Henderson poverty lines. These pros and cons are provided in the “Relative poverty lines” section below.
[18] The AIER submitted that “Henderson poverty lines are an inadequate measure because they have not adapted to current Australian circumstances”. 23
Relative poverty lines
[19] The Australian Government’s view on relative poverty lines is provided in the “Henderson poverty line” section above (it mentions “relative living standards” rather than “relative poverty lines” but the context suggests it means the latter).
[20] The ACTU “believes that the 60% of median income line is the most relevant for wage setting”, 24 noting that this line has become more widely used in recent years, and that the European Union’s “‘at-risk-of-poverty threshold’ is set at 60% of the national median equivalised disposable income (after social transfers)”.25
[21] ACOSS submitted that the pros of poverty lines are:
● that they are easy to understand (at least in principle)
● they are relatively easy to update, and
● they identify target households’ position in the income distribution.
[22] It submitted that the cons of poverty lines are:
● that they are arbitrary unless grounded in direct living standard research
● that the correlations between income and living standards may not be strong, and
● it is unclear whether they are an appropriate benchmark for minimum wages.
[23] Options it identified to overcome these weaknesses included:
● validating poverty lines using deprivation surveys or “consensual poverty lines”
● moving towards a “full-income” measure of poverty that accounts for asset holdings, etc., and
● adding a margin to poverty lines for wage fixing purposes. 26
[24] ACCER noted that relative poverty lines “are a widely accepted tool of analysis and policy-making in OCED countries”, with the exception of the United States. It cited three aspects of using relative poverty lines:
● the establishment of a clear and transparent process for the estimation of changes in disposable incomes between surveys
● the identification of households for which calculations should be made, and
● the determination of equivalence scales to be used when calculating the household poverty lines. 27
[25] ACCER supported the continuation of the practice used primarily by the Australian Fair Pay Commission of updating the most recent annual ABS’s figures on median and mean disposable income by reference to changes in per capita household disposable income as measured each quarter by the Melbourne Institute. It also supported the continued use of the OECD equivalence scales, subject to adjustments for child care costs. 28
[26] ACCER claimed that no conclusion needs to be “drawn about the appropriateness of any particular figure in the range of, say, 50% to 60% of median disposable income”. 29
Budget standards
[27] The Australian Government’s view on budget standards is provided in the “Henderson poverty line” section above.
[28] The ACTU submitted that:
“Budget standards provide an extremely useful means of assessing the ability of low paid workers and their household to meet their needs. The ACTU has referred to the ‘modest, but adequate’ standard produced by the Social Policy Research Centre in the past as one indicator of the adequacy of minimum wages. The ACTU would support any effort to update and revise these budget standards.” 30
[29] ACOSS submitted that the pros of budget standards are:
● that they can be benchmarked to income
● they are transparent and easy to understand, and
● there is a direct connection between expenditure items and actual living standards.
[30] It submitted that the cons of budget standards are:
● that they are costly/difficult to update
● correlations between a given expenditure level and living standards may not be strong, and
● there is subjectivity involved in choosing many of the expenditure items.
[31] Options ACOSS identified to overcome these weaknesses included:
● using budgets to locate a benchmark in income distribution, then index the standards like a poverty line
● taking account of confounding factors such as asset holdings, and
● validating expenditure items using focus groups, opinion polls or expert assessments. 31
[32] ACCER noted that over the years it has:
“... argued that the Social Policy Research Centre (SPRC) budget standards material is the best evidence available about the basic living costs of low paid workers and their families and has used the SPRC’s Low Cost budget as the primary reference point for wage-setting, on the basis that the standard of living of working families should be substantially higher. This does not mean that the material does not have shortcomings; but ACCER has argued that its shortcomings can be overcome with supplementary research.” 32
[33] It submitted that “Priority should be given to a process of evaluation which addresses issues raised and identifies modifications, where appropriate”. 33 In particular:
“ACCER recognises that the SPRC’s estimates of housing costs has limitations and has proposed that the Commonwealth’s data on rents paid by those in receipt of rental assistance be used [and ACCER] propose that the review elicit views on the utility of this data.” 34
Indicators of financial stress
[34] The Australian Government submitted that indicators of financial stress “have increasingly been used as direct measures of outcomes”, but noted that “they are self reported and can be blunt measures in the assessment of need”. 35
[35] ACOSS submitted that “[r]espondents to financial stress surveys may indicate high levels of stress but this may be due to their expenditure preferences rather than their needs or lack of access to essential items”. 36 However, it includes financial stress indicators as one of the benchmarks against which the living standards of workers on minimum wages should be regularly assessed.
Deprivation surveys
[36] ACOSS submitted that the pros of deprivation surveys are:
● they are robust direct measures of living standards, and
● they capture the diversity of needs and resources in the community.
[37] It submitted that the cons of deprivation surveys are:
● the definition of essential items can be arbitrary
● they are difficult to update
● correlations between deprivation and income may not be strong, and
● it is unclear whether they are an appropriate benchmark for minimum wages.
[38] Options it identified to overcome these weaknesses included:
● validating essential items using an opinion poll or focus groups
● examining the relationship between a deprivation index and the income levels of different groups in the community, and
● adjusting the deprivation index to a level “above poverty”, or broadening the scope of the survey by including non-essential items. 37
Other indicators
[39] The ACTU submitted that “[o]ne of the more simple, yet useful, proxy measures of the living standards of minimum wage workers relative to other workers is the ratio of the minimum wage to average or median wages, either on an hourly basis or for ordinary full time work”. 38 It submitted that both pre-tax and post-tax comparisons of relative wages are useful.
[40] The ACTU also submitted more generally that an appropriate benchmark is that “employee needs are met when they have an income sufficient to participate in and to belong to Australian contemporary society; a standard that facilitates social inclusion for minimum wage workers”. 39 However, it recognised that “the Panel wishes to secure a greater degree of consensus about how to measure and assess the needs of the low paid”,40 though it thought it unlikely that complete consensus will be achieved.
[41] The ACTU claimed that “[n]o one measure will be sufficient”. 41
[42] ACCI submitted “that changes in the cost of living, as evidenced by measures such as the [Consumer Price Index], survey data on households, and the impact of the tax/transfer system, appears to be the most relevant proxy of measures of the needs of the low paid”. 42
[43] ACOSS submitted that:
“... [s]ince no single measure captures the complexity of living standards and no single measure is likely to attract overwhelming support among experts or the community, it is best for the Commission to ‘triangulate’ between the best available measures when assessing the relative living standards of low paid workers and their families.” 43
[44] ACOSS group the approaches to measuring living standards into four categories depending whether they are predominantly direct or indirect (i.e. whether or not they measure living standards through proxy measures such as income), and objective or subjective (i.e. whether they are measured by observing inputs or outcomes or by asking people to give perceptions of living standards).
[45] In terms of direct or indirect measures, it notes there are trade-offs, in that the former capture the diversity of living standards across the community but may be difficult to standardise or convert into income, and that the latter are readily updated and compared with wage levels but may not be strongly correlated with living standard “outcomes”. It prefers objective over subjective measures because of the biases in the latter. 44
[46] ACCER supported the comparison of “a variety of tables that estimate the disposable incomes of workers and working families, for the purpose [of] comparing relative living standards or comparing households with a benchmark”; 45 for example, the table in Fair Work Australia’s Statistical Report as of 31 March 2011 which compared households of different income levels (based on work classifications) with each other and with the 60 per cent of median poverty line. However, it had concerns about the calculation and use of some of the payments, and argued that the components and sources for the figures should be made more explicit.
[47] AIER submitted that:
“... it is clear that there is no single measurement tool that addresses all of the appropriate criteria with unqualified positive responses. Measures of income, expenditure, wealth, financial stress and deprivation and social exclusion each have a contribution to make to the analysis. In the absence of the definitive test that meets all criteria, the appropriate course is to have regard to all those measures and balance them by reference to their limitations and advantages according to the suggested criteria, as well as their own inherent disadvantages.” 46
1 [2011] FWAFB 3400 at para. 227, 3 June 2011.
2 <http://www.fwa.gov.au/index.cfm?pagename=wagereview2012&page=introduction>.
3 <http://www.fwa.gov.au/index.cfm?pagename=wagereview2012&page=lowpaysubmissions>.
4 [2011] FWA 7288.
5 <http://www.fwa.gov.au/sites/wagereview2011/statistical_reporting/Statistical_Report_31-Mar-2011.pdf>, Table 10.1 at p. 33.
6 MA000010.
7 Australian Government submission, p. 2.
8 Australian Government submission, pp. 1–2.
9 ACTU submission, p. 2.
10 ibid.
11 ibid., p. 3.
12 ACCI submission, p. 4 at para. 15.
13 ACOSS submission, p. 1.
14 AIER submission, p. 4–5 at para. 22.
15 ACTU submission, p. 3.
16 ibid., p. 4.
17 ibid.
18 ACOSS submission, p. 2.
19 ibid.
20 ACTU submission, p. 2.
21 Australian Government submission, p. 2.
22 ACOSS submission, p.4.
23 AIER submission, p. 5 at para. 27.
24 ACTU submission, p. 5.
25 ibid.
26 ACOSS submission, p. 4.
27 ACCER submission, p. 2 at para. 6.
28 ibid., pp. 2–3.
29 ibid., p. 2.
30 ACTU submission, p. 4.
31 ACOSS submission, p. 4.
32 ACCER submission, p. 3 at para. 12.
33 ibid.
34 ibid., at para. 13.
35 Australian Government submission, p. 2.
36 ACOSS submission, p. 3.
37 ibid., p. 4.
38 ACTU submission, p. 5.
39 ibid., p. 1.
40 ibid.
41 ibid., p. 3.
42 ACCI submission, p. 5 at para. 20.
43 ACOSS submission, p. 3.
44 ibid., p. 4.
45 ACCER submission, p. 4 at para. 16.
46 AIER submission, p. 6 at para. 27.
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