Fair Work Act 2009
s.285 - Annual wage review

Contents

Abbreviations

1. Overview and the Decision

Introduction

[1] The Fair Work Act 2009 (Cth) (Act) requires the Expert Panel (Panel) to conduct and complete a review of the national minimum wage (NMW) and modern award minimum wages, in each financial year. The Panel must make a NMW order and may set, vary or revoke modern award minimum wages. The NMW order applies to award/agreement free employees and modern award minimum wages are the minimum wages contained in modern awards (including classification rates, junior rates and casual loadings). As part of its decision making process, s.285(2) of the Act requires that the Panel first form a view about the NMW rate it proposes to set in the annual wage review (Review) and then take that proposal into account in exercising its powers to set, vary or revoke modern award minimum rates. The relevant statutory framework is discussed in some detail in Chapter 2.

[2] This decision deals with the Annual Wage Review 2016–17 (2016–17 Review) and directly affects over 2.3 million employees in Australia who are award reliant. 1

[3] The main source for information on the number of employees affected by the Panel’s decision is from the ABS’ Survey of Employee Earnings and Hours (EEH). The most recent survey was undertaken in May 2016. 2

[4] From these data, the Australian Government and the Australian Council of Trade Unions (ACTU) submitted that 22.7 per cent of employees (over 2.3 million employees) had their pay set by an award in May 2016. 3 In addition, the Australian Government used data from the 2016 EEH to estimate that a further 66 100 employees on individual arrangements are paid the NMW rate.4 Further, as noted by the Australian Government, the NMW rate features in 45 of the 122 modern awards.5

[5] In addition, as we have previously accepted, the impact of Review decisions extends beyond award-reliant employees and employers as increases flow-on to other employees. 6

[6] This Chapter summarises the matters we have considered, our reasoning and the increase we have decided upon. A detailed discussion of these matters is provided in the subsequent Chapters. We do not repeat all of that material here but the views expressed in this Chapter should be seen in the context of our decision as a whole.

The Panel’s approach

[7] As part of the Review, the Panel considers both the setting of the NMW rate and whether to make any determinations varying modern award minimum wages. These tasks are undertaken by reference to the particular statutory criteria applicable to each function. The Panel’s task is to consider the relevant statutory criteria in the context of the prevailing economic and social environment in order to make its decision in the Review. 7 In taking into account available economic and social data, the Panel’s approach is to assess the changes in these data over the past year and to consider longer-term trends in order to determine how they inform the statutory criteria.

[8] When evaluating developments in the economy, the labour market, relative living standards and the needs of the low paid, collective bargaining and equal remuneration, we routinely look to developments over the medium and long term, as well as to changes over the past year. This is evident in the material that is included in the Statistical Report—Annual Wage Review 2016–17 (Statistical report) that accompanies the Review. Our capacity to take both a contemporary and a longer-term perspective is determined by the available data. A focus on developments over the past 12 months enables us to see how things have changed since the previous Review decision. The longer-term perspective reduces our reliance on contemporary data that can be volatile and subject to error. It also enables us to see the cumulative effects of the annual changes on which we focus, including our own decisions.

[9] As mentioned in the Annual Wage Review 2015–16 (2015–16 Review) decision, the Review is essentially a regulatory function the end result of which will affect the rights and responsibilities of the employees who are covered by the NMW order or a modern award and their employers. 8 The nature of the function and the powers exercised by the Panel bring with it important procedural fairness requirements and an obligation to deliver substantive justice.

[10] The Act requires that the Panel ensure that all persons and bodies (referred to collectively as parties) are given a reasonable opportunity to make and reply to written submissions. In this Review, a number of parties took this opportunity by lodging one or more written submissions and participating in consultations on 17 and 18 May 2017. The timetable for the Review and all of the submissions, transcript, research reports, and some additional economic data were published on the Fair Work Commission’s (Commission’s) website to ensure that all parties have had a reasonable opportunity to participate. The Panel considered all the material received from parties and the published research and data in making its decision.

[11] The Panel’s approach to its statutory function is encapsulated in the following extract from the Annual Wage Review 2014–15 (2014–15 Review) decision:

‘In taking into account available economic and social data, the Panel’s approach is broadly to assess the changes in these data from year to year and determine how they inform the statutory criteria. Put another way, and consistent with ACCI’s submission, if there were no change in the relevant considerations from one year to the next then, all other things being equal, a similar outcome would result.’ 9

[12] The approach set out in the above passage reflects the nature of judicial reasoning that underpins the rule of law. Broadly speaking, differently constituted Panels should evaluate the evidence and submissions before them in accordance with a consistent and stable interpretation of the legislative framework. Justice requires consistent decision making unless a difference can be articulated and applied. 10

[13] These public policy considerations inform the way Reviews are conducted. This does not mean that the Panel’s consideration of the statutory framework is stagnant. As the Panel made clear in the Annual Wage Review 2013–14 (2013–14 Review) decision, 11 there is nothing wrong with a party advancing a submission that a past Panel decision had wrongly construed a statutory provision and advancing an alternate construction. The Panel has reconsidered past decisions regarding the interpretation of particular provisions.12

[14] The above observation is also apposite to the Panel’s consideration of all of the issues before it. In conducting a Review, the Panel is engaged in a constant process of evaluating past assumptions and findings on the basis of contemporary data and the available evidence. To illustrate that point, in the current Review our consideration of the international research on the impact of increases in minimum wages on employment, particularly the United Kingdom (UK) research, has fortified our view that modest and regular wage increases do not result in disemployment effects. Further, that research suggests that the Panel’s past assessment of what constitutes a ‘modest’ increase may have been overly cautious, in terms of its assessed disemployment effects. We discuss these issues in Chapter 6.

[15] In each Review decision the Panel discloses the factors which are most relevant in a particular year, and we have done so in this decision. The Panel’s decision-making process should be as transparent as possible, and we identify the most significant issues which have impacted on the Panel’s decision in each particular Review. 13 But, as noted in the 2015–16 Review decision, we do not quantify the weight given to particular considerations.

[16] In past Review decisions, the Panel has rejected submissions calling for specific factors to be quantified. In the Annual Wage Review 2012–13 (2012–13 Review) decision, the Panel addressed submissions from the Australian Industry Group (Ai Group) and the National Farmers’ Federation (NFF) to quantify the discount to be applied to any minimum wage adjustment for that year due to the 0.25 per cent increase in the superannuation guarantee. The Panel stated that the legislative framework did not support an approach that quantifies each matter taken into account, rather, minimum wage fixation involves the exercise of broad judgment:

‘…we have not applied a direct, quantifiable, discount to the minimum wage increase, as proposed by Ai Group and the NFF. As we have noted, the AIRC [Australian Industrial Relations Commission] decisions following the introduction of the SGC [Superannuation Guarantee Charge] Acts provide no support for such an approach. Nor does the current legislative framework support such an approach. In reviewing modern award minimum wages and the NMW the Act requires us to have regard to a range of considerations. As we note in Chapter 2, there is a degree of overlap between the matters specified in the modern awards objective, the minimum wages objective and the objects of the Act. To the extent that these matters are of direct relevance to the Review, they may be grouped into three broad categories: economic; social; and collective bargaining. The range of considerations we are required to take into account calls for the exercise of broad judgment, rather than a mechanistic approach to minimum wage fixation.’ 14

[17] The wide range of data and information before the Panel and the often complex interaction between these factors mean that a comparison between Reviews will rarely be straightforward. There is no formulaic relationship between changes in particular indicators or factors over time and the outcome of particular Reviews. While the Panel seeks to explain its view of the circumstances (including forecasts or projections) prevailing in each Review in comparison with previous years, it is not feasible to quantify the weight given to particular factors in balancing the various considerations prescribed by the Act. This also explains why proposals premised on a fixed relationship between the rate of inflation and minimum wages directed towards real wage maintenance are not consistent with the statutory framework. These considerations also informed our recent decision to decline to adopt a medium-term target for the NMW. Before turning to that decision, it is convenient to first deal with the submissions which contended that we should take into account the Penalty Rates decision in determining any increase in the NMW and modern award minimum wages.

The Penalty Rates decision

[18] On 23 February 2017 the Commission issued a decision (the Penalty Rates decision) 15 dealing with the weekend and public holiday penalty rates and some related matters in a number of modern awards in the hospitality and retail sectors.

[19] The Penalty Rates decision determined that the existing Sunday penalty rates in the Hospitality, 16 Fast Food,17 Retail18 and Pharmacy19 Awards did not achieve the modern awards objective, as they do not provide a fair and relevant minimum safety net.

[20] Broadly speaking, the effect of the Penalty Rates decision was to reduce Sunday penalty rates to 150 per cent for full-time and part-time employees and to 175 per cent for casual employees in the Hospitality, Retail and Pharmacy Awards. 20 In relation to the Fast Food Award, for reasons associated with the preferences of the relevant employees and the limited impact of Sunday work upon those employees (see Chapter 7.5 of the Penalty Rates decision), the Full Bench decided to reduce the Sunday penalty rate, for Level 1 employees from 150 per cent to 125 per cent (for full-time and part-time employees) and from 175 per cent to 150 per cent (for casual employees). No change was made to the Sunday penalty rate for Level 2 and 3 employees.21

[21] The Penalty Rates decision also reduced the public holiday penalty rates in the Hospitality, Fast Food, Restaurant, 22 Retail and Pharmacy Awards.23 In essence, the existing rates for full-time and part-time employees are to be reduced from 250 per cent to 225 per cent and the public holiday rates for casuals are to be set at 250 per cent.

[22] In a subsequent decision, 24 the Full Bench determined the transitional arrangements in respect of these penalty rate reductions.

[23] A number of submissions referred to whether and how the Panel should consider the Penalty Rates decision.

[24] The Victorian Government submitted that the Penalty Rates decision should be taken into account in this Review. 25 The Federal opposition submitted that the Panel should consider the impact of the reduction in penalty rates on workers and the economy26 as they ‘will represent significant reductions in the total earnings and income of workers in these industries, and accordingly impact on fairness across our society and the performance of the Australian economy’.27

[25] Ai Group submitted that it would be ‘inappropriate for the quantum of any minimum wage increase to be any higher as a result of the Penalty Rates Decision’ 28 and any increase to the NMW to ‘compensate’ for the Penalty Rates decision ‘would negate the intended beneficial effects.’29

[26] During final consultations, the ACTU stated that while it was not convinced that the Review could deal directly with the Penalty Rates decision it accepted that it was a ‘general contextual matter’. 30

[27] The South Australian Government proposed that, upon the implementation of the Penalty Rates decision, a special national minimum wage be set for the ‘specific class of employees’ affected. 31 This proposition was not supported by any other party and Ai Group submitted that ‘[t]he FW Act does not enable a “special national minimum wage” to be set for the class of employees proposed by the South Australian Government’.32

[28] The Panel invited the South Australian Government to elaborate on the statutory or legislative grounds for this proposal in advance of consultations. 33 No reply was received from the South Australian Government.

[29] The Penalty Rates decision will, over time, reduce the employment costs of some employers covered by the Hospitality and Retail Awards affected by the decision. It is not appropriate to take account of the decision in some quantifiable or mechanistic way to support a particular level of increase in the NMW or in modern award minimum wages. Nor are we persuaded (on the limited submissions before us) that we have jurisdiction to set a ‘special NMW’ of the type proposed by the South Australian Government, even if we were persuaded of the merit of doing so, which we are not.

[30] The Penalty Rates decision does form part of the broad factual matrix against which the Review is conducted and, to that limited extent, we have taken it into account.

[31] We now turn to deal briefly with our preliminary decision regarding the adoption of a medium-term target for the NMW before turning to the economic, social and collective bargaining considerations we must take into account.

Preliminary Decision—medium-term target

[32] In the Annual Review 2016–17 Preliminary decision (the 2016–17 Preliminary decision),34 the Panel considered a proposal advanced by the ACTU, United Voice and others that the Panel adopt a medium-term (4-year) target for the NMW, set at 60 per cent of the median (adult) ordinary time earnings. Based on stated assumptions regarding increases in the Consumer Price Index (CPI) and real median wage growth, United Voice estimated that, to reach the target for the NMW of 60 per cent of median adult ordinary time weekly earnings by 2020, the NMW would have to increase by 6.5 per cent over each of the next 4 years, providing a total increase of $194. 35 The submissions advanced in support of the proposal argued that a medium-term target was necessary to assist the Panel with its consideration of the relative living standards and needs of the low paid, by addressing inequality, particularly the minimum wage relative to median earnings.

[33] As mentioned in the 2016–17 Preliminary decision, it was uncontroversial that in the context of a particular Review the Panel cannot ‘bind’ future panels in subsequent Reviews. It followed that any attempt to adopt a ‘hard’ or binding medium-term target for the NMW would be ineffective (even if it were accepted that the Panel had power to adopt such a target). The issue then became whether any useful and appropriate purpose would be served by adopting a more ‘flexible’ medium-term target of the type described by the ACTU and United Voice. For the reasons set out in the 2016–17 Preliminary decision we thought not and accordingly, we rejected the adoption of a medium-term target for the NMW, for the following reasons:

‘Those supporting a medium-term target for the NMW do so principally for the reason that they believe a target would increase the weight given to the requirements for the Panel to set rates that ‘establish and maintain a safety net of fair, relevant and enforceable minimum wages’; and to consider the relative living standards and the needs of the low paid’ as the Panel considers the full range of matters that it is required to take into account. Those who oppose a medium-term target share this view, that such a target would give greater weight to these criteria, and oppose it on those grounds (among others)…

As we have mentioned, no particular primacy is attached to any of the considerations identified in the modern awards objective (s.134(1)(a)–(h)) or in the minimum wages objective (s.284(1)(a)(e)). The adoption of the proposed target would, in our view, have the effect of elevating one statutory consideration (‘relative living standards and the needs of the low paid’) above all others on an ongoing basis, rather than requiring consideration of that matter in the social and economic context of each review and weighting it accordingly relative to the other considerations. As we have mentioned while the relevant statutory considerations must be taken into account it is important to bear in mind that they inform the modern awards objective and the minimum wages objective, but they do not themselves constitute the relevant statutory objectives.’ 36

[34] In essence, we did not adopt the medium-term target proposal because to adopt such a target would effectively elevate one statutory consideration (‘relative living standards and the needs of the low paid’) above the other considerations we are required to take into account.

[35] We also acknowledged the need to periodically assess the medium and long-term consequences of successive Review decisions and recognised that these decisions have both an immediate and cumulative impact. A chart on the minimum wage bite over the last 10 years is now included in the Statistical report. Parties can make submissions on the level and trends in the minimum wage bite in each Review and the Panel can consider these submissions at that time. As outlined earlier, the Panel also tracks changes in other relevant indicators over time, including factors such as productivity, living costs and inflation, employment and financial stress. It is also appropriate that medium and longer-term trends in these factors are considered as part of each Review.

[36] In rejecting the proposition that we adopt a medium-term target we made a number of observations regarding our statutory obligation to take into account ‘relative living standards and the needs of the low paid’, to which we refer later. We now turn to the economic, social and collective bargaining considerations which we must take into account.

Economic considerations

[37] As is often the case, not all the signals about the strength of the economy and the labour market point in the same direction.

[38] Our conclusions are influenced by the summary of economic conditions provided by the Reserve Bank of Australia (RBA) in its May 2017 Statement on Monetary Policy:

‘The Australian economy grew by 2.5 per cent over 2016, which is a bit below central estimates of potential growth. GDP growth rebounded to 1.1 per cent in the December quarter, confirming that the weak outcome in the September quarter largely reflected temporary factors. Recent data are consistent with moderate growth in early 2017. Employment growth was fairly subdued over 2016, but picked up to be around average in early 2017. Looking ahead, economic growth is expected to pick up gradually to be a bit above potential growth, supported by the low level of interest rates and the ongoing recovery in the global economy’. 37

[39] Gross domestic product (GDP) growth in Australia outperformed the average of the major 7 OECD countries across 4 of the 5 quarters to the December quarter 2016. Real net national disposable income (RNNDI) has grown more quickly than GDP over the past year, as the terms of trade have improved. Economic conditions have varied across states, with stronger growth in New South Wales and Victoria and weakest growth in Western Australia. As usual, the different parts of the economy have had diverse outcomes. Agriculture, forestry and fishing has done particularly well while there has been a decline in Construction.

[40] Business conditions generally look quite healthy. Profitability grew by a very strong 26 per cent for all industries and by a still strong 10 per cent for non-mining industries over the past year. As a result, the profit share of factor income rose. The most recent data (for 2015–16) show that the growth in profit margins was greater for small businesses than for all businesses. Consistent with these profit outcomes, bankruptcy rates remain quite low and the entry of new businesses exceeded the exits by a margin that exceeds that of 2015. The most reliable business surveys show that businesses see their conditions as the most positive since the global financial crisis (GFC). Growth in output was below the all industry average for 3 of the 4 most award-reliant industries and profits grew in only two of them.

[41] Labour productivity in the market sector grew more strongly across 2016 than it had in the previous 2 years. After some years of decline, multifactor productivity (MFP) continued its more recent modest growth. It grew more strongly over the year to the June quarter 2016 than it had in all but one of the past 10 years. The 2.3 per cent per annum growth in labour productivity in the period 2007–08 to 2014–15 exceeds or is virtually the same as growth in all periods from 1973–74, except 1993–94 to 1998–99.

[42] Labour productivity (GDP per hour worked) has grown by 14.1 per cent over the decade to 2016 and by 9.6 per cent over the period from the June quarter 2011 to the June quarter 2016. Over the last 5 years, the real value of the NMW and modern award rates has grown by less than half the rate of growth of labour productivity, at 4.3 per cent. This is displayed in Chart 1.1.

Chart 1.1: Changes in labour productivity and the real NMW, June quarter 2011 to June quarter 2016, index (Jun-11 = 100)

Source: Based on Fair Work Commission, Statistical report—Annual Wage Review 2016–17, 1 June 2017, Charts 2.1; 9.1; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0; ABS, Consumer Price Index, Australia, Mar 2017, Catalogue No. 6401.0; Manufacturing and Associated Industries and Occupations Award 2010 (Manufacturing Award).

[43] We acknowledge that there is considerable variation in labour productivity growth at the industry level, reflecting the specific conditions in each industry, as well as a range of data measurement issues. But, as shown in Chart 4.26, over the past 2 business cycles the average annual growth rates in labour productivity (and multifactor productivity) in the Retail trade sector exceeded the average annual growth rates for the market sector generally. This is significant because the Retail trade sector accounts for more award-reliant employees than any other sector. 38

[44] The RBA has noted that the growth in nominal unit labour costs has been lower than our major trading partners and concludes that:

‘These differences in the growth rates of Australia’s unit labour costs versus those of its trading partners have led to a more marked improvement in Australia’s labour market competitiveness than in the competitiveness of the prices of its goods and services. Australia’s real effective exchange rate based on unit labour costs has depreciated by around 25 per cent since March 2013.’ 39

[45] Real and nominal unit labour costs have remained reasonably steady over the 4 years to mid-2016. The most recent sharp downturn is largely attributable to the rise in the terms of trade during the year. This is not expected to persist.

[46] The unemployment rate has remained steady for several years. There has been some rise in underemployment, but when the extra hours that the underemployed wish to work is taken into account, underemployment has risen only a little. On this basis, movements in underemployment are continuing to track the unemployment rate. A large majority of part-time workers were not seeking extra hours of work. While about 25 per cent said that they would like to work extra hours, only half of these had taken active steps to find more work.

[47] When the impact of the ageing of the population is taken into account, there has been no fall in either the participation rate or the employment to population ratio. These are signs of strength in the labour market. We note, however, that the full-time employment of men of working age continues its long-term decline.

[48] Inflation and wages have continued to grow at historically low rates. Consumer inflation has mostly been below 2.0 per cent, though the CPI rose by 2.1 per cent over the year to the March quarter 2017. The prices faced by producers were boosted by the rise in the terms of trade during 2016. Wages growth was highest for agreements and lowest (at 1.9 per cent) for the WPI. Growth in the NMW and modern award rates, at 2.4 per cent, exceeded inflation and growth in both the Wage Price Index (WPI) and average weekly ordinary time earnings (AWOTE).

[49] Employment continued to grow in 2016, but hours worked was flat. The main reasons for the small growth in hours worked were a relatively high growth in part-time employment (rather than full-time) and a decline in the average number of hours worked by full-time workers.

[50] Both the Commonwealth Treasury (Treasury) and the RBA expect growth to pick up in 2017–18, to around its potential growth rate. They expect that as a result, employment will grow at ‘around its long-run average’ 40 with little change in unemployment.

Social considerations

[51] The minimum wages objective and the modern awards objective require us to take into account ‘relative living standards and the needs of the low paid’ when setting minimum wage rates. Those matters must be considered, in the context of the relevant evidence in a particular Review. They are different, but related, concepts. 41

[52] The assessment of relative living standards requires a comparison of the living standards of workers reliant on the NMW and modern award minimum rates with those of other groups that are deemed to be relevant and focuses on the comparison between award-reliant workers and other employed workers, especially non-managerial workers. 42

[53] As to the assessment of the needs of the low paid, this requires an examination of the extent to which low-paid workers are able to purchase the essentials for a ‘decent standard of living’ and to engage in community life, assessed in the context of contemporary norms. In successive Review decisions the Panel has concluded that a threshold of two-thirds of median full-time wages provides ‘a suitable and operational benchmark for identifying who is low paid’, within the meaning of s.134(1)(a). 43

[54] Employees who are award reliant and/or receive low pay comprise substantial parts of the employee workforce. Approximately 23 per cent of employees are paid the equivalent of the NMW or a modern award minimum rate. Estimates of the share of employees who are low paid are less exact. The Australian Government provided the most detailed estimate of the numbers of the low paid and concluded that they comprised 12.4 per cent of all employees and 29.3 per cent of award-reliant employees. 44 On ACTU data, 42 per cent of the award reliant were paid at or below the C10 rate.45

[55] While 86 per cent of award-reliant employees are adults, they are disproportionately young, female, single, have no children, work part time, work as casuals and work for small businesses. The proportion working for large businesses has risen recently.

[56] In considering the relative living standards of the low paid the most appropriate comparator group is employees, especially non-managerial employees. The living standards of people who are not in the labour force, including the retired, is of some interest but carries only a small weight in our assessment of the relative living standards of the low paid.

[57] The relative standard of living of the low paid is affected by their wage, but also by other contributors to the equivalent disposable income of the households in which they reside. Taking these factors into account, it is appropriate to focus on the location of the low paid in the distribution of the disposable income of employee households. We prefer this distribution to the distribution that includes all households. The evidence before us shows that 28 per cent of low-paid employees are in the bottom 2 deciles of all employee households and 62 per cent are in the bottom half of that distribution. Low-paid men were more concentrated in the 2 bottom income deciles than were women, as were low-paid part-time workers. Around 70 per cent of award-reliant workers are located in the bottom half of the employee household income distribution. We think that it is clear that workers who receive the NMW or a modern award rate of pay are disproportionately located in the lower deciles of the relevant (i.e., employee) distribution of household disposable income.

[58] The NMW increased in real terms by 3.5 per cent over the decade and by 0.9 per cent over the year to the December quarter 2016. Although subject to year-to-year variation, the change in the real NMW has been positive in most years over the decade. Since 2009, the growth in the C14 and C10 rates has matched quite closely the growth in the WPI, and been only a little below growth in average weekly earnings (AWE) and average weekly ordinary time earnings (AWOTE).

[59] Measured as a proportion of median full-time adult earnings, the wage bite of the NMW/C14 award rate fell from a high of 58.4 per cent in mid-2004 to 53.8 per cent in mid-2016: most of the fall occurred from 2005–08. This compares with the Organisation for Economic Co-operation and Development (OECD) average of 52.0 (in 2015). Australia had a lower growth rate in minimum wages from 2003 to 2014 than did New Zealand, France, UK, United States of America (US), and Canada.

[60] As we acknowledged in the 2016–17 Preliminary Decision, the minimum wage bite is an important indicator of relative living standards and wage inequality 46 and Chart 1.2 shows the decline in the minimum wage bite over the 16 years to 2016, although it has stabilised in recent years.

Chart 1.2: C14 rate relative to median weekly earnings of full-time employees in main job, 2000 to 2016

Note: Median earnings are measured in August of each year. Following the amendments to the Workplace Relations Act 1996 (Cth) taking effect in 2006, the Federal Minimum Wage (FMW) was set at $12.75 per hour, equivalent to $484.50 per week.

Source: Statistical report, Chart 8.4; ABS, Characteristics of Employment, Australia, various, Catalogue No. 6333.0; ABS, Employee Earnings, Benefits and Trade Union Membership, Australia, various, Catalogue No. 6310.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award (from 1 January 2010).

[61] There has been a substantial rise in inequality in the earnings distribution, much of which occurred in the earlier part of the decade to 2016 and indeed in the decade prior to that. There has not been a clear growth in inequality of earnings over the past 5 years. The real value of the NMW has taken a different path, first rising then remaining unchanged until 2014 when it rose again. Over the period, it rose by 4.3 per cent, a little behind the growth in the 10^th and 25^th percentiles of the earnings distribution of 5.8 per cent and 5.5 per cent, respectively (Chart 1.3).

Chart 1.3: Real weekly total earnings (full-time adult non-managerial employees) by percentile and the real NMW, 2011 to 2016—index (2011 = 100)

Note: The EEH Survey was not conducted in 2011, 2013, and 2015. Results for these years have been obtained through linear interpolation. Earnings data for 2014 and 2016 are based on full-time non-managerial employees paid at the adult rate.

Source: Statistical report, Chart 8.3; ABS, Consumer Price Index, Australia, Mar 2017, Catalogue No. 6401.0; ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0; Manufacturing Award.

[62] The fact that there has been some growth, albeit modest, in the real value of the NMW and modern award rates means that those who remain dependent on the wage safety net have had their real earnings increased, even while their relative position has declined. In evaluating these changes, we consider both minimum rates and low earnings, being aware as we do so that the influence of changes to the NMW and modern award rates will be apparent in changes in the absolute and relative earnings of those at the bottom of the earnings distribution.

[63] Inequality in household disposable income did not rise as fast as that for earnings (moderated by the tax-transfer system and the composition and levels of employment of households). Although the latest data are for 2014, at that time there was no evidence of recent rises in inequality of household disposable income among at least the bottom half of the income distribution for all households. Nonetheless, on the Gini coefficient measure, Australian levels of inequality of household disposable income remain relatively high by OECD standards.

[64] Most hypothetical family types that have a NMW job have disposable incomes above the 60 per cent of median household disposable income relative poverty line, with the greatest margin being for a single parent with one child. All have had some small increase in their income over the period from 2011 to 2016, and over the year to December 2016, relative to the 60 per cent of median measure of poverty. The family types that have an income that is below the 60 per cent poverty line are those that have an adult who is not in the labour force (i.e., does not receive a wage or the Newstart Allowance). This applies whether or not there are children in the household. In another perspective on needs, in 2015, the proportion of low-paid employee households who reported financial stress was down across most measures compared with 2011 and little changed between 2014 and 2015. The evidence on financial stress is consistent with the evidence on inequality and poverty. Levels have risen over the longer period and remain elevated. But none has become worse in recent years.

[65] The Australian Government continued to put the case that the ‘tax-transfer system plays a large role in equalising the distribution of income among Australian households’ 47 and is more efficient in doing so than increases to the NMW and modern award rates. For the reasons given in Chapter 6 we do not accept that the tax-transfer system relieves us from the statutory obligation to consider relative living standards and the needs of the low paid when setting the NMW and modern award wages. Furthermore, the changes to the tax-transfer system in the past 2 budgets have reduced the financial assistance that is provided for low-income families with children. A majority of low-wage workers are single without children and the many who work full time are not assisted by the social welfare system; indeed, they have their disposable incomes reduced by income tax.

[66] The high and continuing levels of child poverty indicate that the combination of wages and social welfare assistance, are not sufficient to ensure that the needs of all low-wage families are met. We view this as a serious matter for society. This conclusion is supported by the evidence that about one-third of people in poverty lived in households for which wages were the main source of income and that about half of these families had children.

[67] The level of the NMW and modern award rates of pay have a significant role to play in seeking to reduce the financial stresses on families. But this role does not extend to a requirement to set the NMW at a level that ensures that a single-earner couple family with children on the NMW has an equivalent disposable income that exceeds the 60 per cent poverty line.

[68] Like many developed countries, Australia has come through an extended period of rising inequality. Rising inequality in the distribution of earnings has not translated fully into rising inequality in the distribution of household disposable income, partly because of the changing nature and work effort of households and partly because of the equalising effects of the tax-transfer system. The rise in inequality has been tempered in recent years. But it has left Australia with a legacy of relatively high inequality in earnings and in household disposable income, and disturbing levels of poverty especially among families with children. The NMW and modern award rates of pay affect the level of earnings of the low paid and of many employee households with relatively low disposable income. Higher levels of safety net pay rates will assist low-paid individuals and families to better meet their needs, and improve their relative standard of living. As a consequence, increasing the NMW and modern award minimum wage will also have some effect in reducing poverty and inequality.

[69] The Act requires the Panel to take into account ‘promoting social inclusion through increased workforce participation’ (s.284(1)(b)). Consistent with past Review decisions, we interpret this to mean increased employment. However, we also accept that modern award rates of pay impact upon an employee’s capacity to engage in community life and the extent of their social participation. Higher minimum wages can provide incentives to those not in the labour market to seek paid work, which needs to be balanced against potential negative impacts on the supply of jobs for low-paid workers. For the purposes of making a determination, we must form a view on the employment impacts of an increase in the NMW and modern award minimum wages.

[70] We conclude from our review of the international literature that the findings of research on the impact of increases in minimum wages on employment have different degrees of relevance for our task, depending on the broad comparability of the countries in question. Specifically, we judge the UK evidence to be quite relevant, both for its comparability and its quality. Although the US is less applicable, we note that its findings generally align with those of the UK. As a result of this international research, particularly in the UK, we have greater confidence in our view that modest and regular wage increases do not result in disemployment effects. Further, this research suggests that the Panel’s past assessment of what constitutes a ‘modest’ increase may have been overly cautious, in terms of its assessed disemployment effects. We are also of the view that minimum and award wage increases would likely lead to some positive, but probably small, effect on consumer demand and this needs to be taken into account.

[71] Some employer groups submitted that increases to minimum and award wages have been excessive having regard to the prevailing economic conditions, and that this level of increase should not be repeated in the current Review. However, the material before us does not cause us to change the view previously expressed that modest increases to the NMW and award wages do not have a discernible impact on employment levels in the prevailing circumstances.

[72] The data on workforce participation and the employment to population ratio do not support the proposition that, among persons within the main working age group (20–64 years), there is an increasing cohort of discouraged job seekers who have left the labour market.

[73] The Panel is of the view that the NMW is at a level that does not discourage people from seeking employment. Because of the operation of the tax-transfer system, the group with the smallest incentive to work is partners in couple families who wish to work part time.

[74] It is not clear what relationship there is, if any, between the level of underemployment and the recent history of increases in the NMW and award wages. There has been no real variation in underemployment rates for the past 2 years. The trend is likely to be driven largely by the decline in the proportion of full-time jobs and the increase in the proportion of part-time jobs over the last 30 years as a result of structural changes in the Australian economy. The unemployment rate remains the best indicator of spare capacity in the labour market, although the underemployment rate should continue to be monitored.

[75] Noting that low-paid work can be a stepping stone to higher-paid work, the Panel endorses the statement made in the 2014–15 Review decision that ‘[w]e cannot be indifferent to the standard of living of low-paid workers just because many do not stay in that situation for long periods’. 48

[76] The research on factors affecting apprenticeships and traineeships concluded that the withdrawal of government subsidies (notably for existing workers and part-time workers in some occupations) clearly contributed to the decline in commencement rates, and that while the 2013 Modern Awards Review decision (Apprentices decision) 49 to increase apprentice wages ‘may have played a role, it seems that any effect appears minor’ given the prevalence of over-award payments to apprentices and the lack of uniformity in commencement trends across individual trades.50

[77] In giving effect to both the modern awards objective and the minimum wages objective the Panel must take into account the principle of equal remuneration for work of equal or comparable value (s.134(1)(e) and s.284(1)(d)). The gender pay gap becomes a relevant consideration in our task because, as was stated in the Penalty Rates decision, it is an element of the requirement to establish a safety net that is fair as well as relevant. 51 It may also arise for consideration in respect of s.284(1)(b) (‘promoting social inclusion through workforce participation’), because it may have effects on female participation in the workforce. We deal with these issues in Chapter 8. For the reasons given in Chapter 8, the grant of a uniform percentage adjustment to the NMW and modern award wage rates would be the approach most consistent with the equal remuneration principle.

[78] In relation to the gender pay gap, women are disproportionately represented among the low paid and hence an increase in minimum wages is likely to promote gender pay equity, though we accept that moderate increases in minimum wages under awards would be likely to have a relatively small effect on the gender pay gap. Increases in minimum wages, particularly percentage adjustments that might exceed increases evident through bargaining, are more likely to have a beneficial impact that is broader than would be the case if flat rate increases were applied to lower classification levels. This is so because of the dispersion of women within award classification structures and the greater propensity for women to be paid award rates at all levels. The other mechanisms available under the Act, such as bargaining and equal remuneration provisions, also provide a further, more direct means of addressing this issue.

[79] The principle of equal remuneration and the gender pay gap consideration are factors in favour of an increase in minimum wages and as such we have considered this together with the various other statutory considerations the Panel is required to take into account.

Collective Bargaining

[80] The modern awards objective applies to the setting, varying or revoking of modern award minimum wages in a Review. One of the matters the Panel is required to take into account in giving effect to the modern awards objective is ‘the need to encourage collective bargaining’ (s.134(1)(b)). In making the NMW order, the Panel must give effect to the minimum wages objective. The minimum wages objective makes no reference to ‘the need to encourage collective bargaining’. However, as we note in Chapter 2, one of the purposes of the Act is to encourage collective bargaining and hence, it is appropriate to take that legislative purpose into account in making the NMW order.

[81] In general terms, there has been a slight trend away from collective bargaining and an increase in award reliance in recent times. Research Report 4/2017—Explaining recent trends in collective bargaining examined factors that have influenced recent changes in collective agreement coverage. It is clear from that report—the findings of which were not challenged by any party—that there are issues of statistical classification 52 as well as economic, structural and societal changes that have contributed to the overall trend towards an increase in award reliance and that the level of minimum wages has not had a significant effect.

[82] As the Panel observed in the 2013–14 Review decision, 53 the available research does not reveal any particular relationship between the incentive to bargain and increases in the NMW and modern award minimum wages. Instead it points to a complex mix of factors that may contribute to employee and employer decision-making about whether or not to bargain.

[83] The Panel’s previous conclusions as to the relationship between increases in minimum wages and collective bargaining remain valid, in particular:

• whilst the gap between minimum wages and bargained wages is likely to increase the incentive for award-reliant employees to bargain, a large gap may be a disincentive for employers to bargain; and
• minimum wages are only one element of the incentive to bargain. 54

[84] Further, while Review decisions determine the floor of such a gap, bargaining outcomes determine the extent of the gap

[85] Given the complexity of the factors which may contribute to decision making about whether or not to bargain, we are unable to predict the precise impact of our decision on collective bargaining with any confidence. It is likely that the increase we have determined in this Review will impact upon the incentive to bargain in various sectors in different ways, but will not, in aggregate, discourage collective bargaining. However, we are not satisfied that the increase we have determined in this Review will encourage collective bargaining and this is a factor we have taken into account, and balanced against the other matters we are required to consider, in determining the outcome of this Review.

[86] In reaching this conclusion, we accept that minimum wage increases may influence bargained outcomes, depending upon the circumstances in each industry sector, including the degree to which the existing bargained or over-award rates exceed the minimum award rates.

The Decision

[87] The Panel received submissions from the Australian Government, several state governments, bodies representing the interests of employees, employers and other groups. Many of these submissions did not advance a specific proposal as to the quantum of any increase to the NMW or modern award minimum wages, including most government submissions. One submission proposed that there be no increase in minimum wages. The parties’ positions are set out in Chapter 3.

[88] We have taken into account all of the relevant statutory considerations. As mentioned in Chapter 2, the underlying intention of the various economic considerations in ss.3, 134 and 284 is that the Panel is required to take into account the effect of its decisions on national economic prosperity and in doing so give particular emphasis to the economic indicators mentioned in the relevant statutory provisions.

[89] The key changes in the economic environment evident in this Review are:

● RNNDI increased by 6.8 per cent over the year to the December 2016, after it fell in the previous year.
● All measures of inflation have increased since the March quarter 2016, but are currently at the lower end of the RBA’s medium-term target range (CPI increased by 2.1 per cent over the year to the March quarter 2017). 55
● Over the 5 years to the December quarter 2016, labour productivity growth in the market sector was higher than the previous 5-year period and rose sharply in 2016.
● On an annual basis, profit growth was particularly strong in 2016 compared with the preceding years and above the 5-year and 10-year averages for both total industries and non-mining industries.
● The principal business conditions surveys show that the assessment of business conditions is positive and above long-term average levels.

[90] The economy has continued to grow, slightly below trend, with real GDP increasing by 2.4 per cent over the year to the December quarter 2016. The unemployment rate has been relatively stable, increasing slightly from 5.7 per cent in April 2016 to 5.8 per cent in April 2017. Wages growth remained subdued, growth in the WPI was lower in 2016 than in 2015, growth in AWOTE rose. The subdued inflation means that there is little risk to the macroeconomic inflationary environment from our decision.

[91] The prevailing economic circumstances provide an opportunity to improve the relative living standards of the low paid and to enable them to better meet their needs. Over the last 5 years, the real value of the NMW and modern award rates has grown at 4.3 per cent which is less than half the rate of growth of labour productivity.

[92] Our consideration of the international research on the impact of increases in minimum wages on employment, particularly the UK research, has fortified our view that modest and regular wage increases do not result in disemployment effects and that research suggests that the Panel’s past assessment of what constitutes a ‘modest’ increase may have been overly cautious, in terms of its assessed disemployment effects.

[93] The level of increase we have decided upon will not lead to inflationary pressure and is highly unlikely to have any measurable negative impact on employment. It will, however, mean an improvement in the real wages for those employees who are reliant on the NMW and modern award minimum wages and an improvement in their relative living standards.

[94] The Panel has taken into account the circumstances of different regions, industries and sectors as part of its broader consideration of the national economy. These circumstances include that there are economic challenges currently facing certain regions and sectors as a result of the transition taking place in the economy and other factors including natural disasters. No exceptional circumstances have been demonstrated such as to warrant a deferral of the increases we have awarded.

[95] We have determined that it is appropriate to increase the NMW. The factors identified above have led us to award an increase of 3.3 per cent. The NMW will be $694.90 per week or $18.29 per hour. The hourly rate has been calculated by dividing the weekly rate by 38, on the basis of the 38-hour week for a full-time employee. This constitutes an increase of $22.20 per week to the weekly rate or 59 cents per hour to the hourly rate.

[96] Having regard to the proposed NMW and the other relevant considerations, we also consider that it is appropriate to adjust modern award minimum wages.

[97] Some parties proposed a higher adjustment to the NMW than the adjustment they proposed to modern minimum rates (or to award rates above a certain classification level), with the apparent intention of providing a more substantial increase to the lowest paid and particularly those living in poverty.

[98] In previous Reviews, the Panel has accepted that if the low paid are forced to live in poverty then their needs are not being met and that those in full-time employment can reasonably expect a standard of living that exceeds poverty levels. 56 While we have not departed from that position, we acknowledge that the increase we propose to award will not lift all award-reliant employees out of poverty (measured by household disposable income below a 60 per cent median income poverty line), particularly those households with dependent children and a single-wage earner. However, to grant an increase to the NMW and award minimum rates of the size necessary to immediately lift all full-time workers out of poverty, or an increase of the size proposed by some parties, is likely to have adverse employment effects on those groups who are already marginalised in the labour market with a corresponding impact on the vulnerability of households to poverty due to loss of employment or hours.

[99] As to the form of the increase, past flat dollar increases in award minimum rates have compressed award relativities and reduced the gains from skill acquisition. In doing so, classification structures designed to properly remunerate work according to its value, and to ensure that equal minimum rates are provided for work of equal or comparable value both within and across awards, have been distorted to a degree. A fundamental feature of the minimum wage objective is the requirement to establish and maintain ‘a safety net of fair minimum wages’, and a necessary element of this is that the level of those wages bears a proper relationship to the value of the worked performed. 57 Flat dollar increases may have had the effect of undermining the achievement of the objective in this respect. The position of the higher award classifications (applying to work of higher value) has reduced relative to market rates and to average earnings and has fallen in terms of real purchasing power. A uniform percentage increase will particularly benefit women workers, because at the higher award classification levels women are substantially more likely than men to be paid the minimum award rate rather than a bargained rate. These matters have led us to determine a uniform percentage increase. The considerations to which we have referred have led us to increase modern award minimum wages by 3.3 per cent.

[100] The determinations and order giving effect to our decision will come into operation on 1 July 2017. Weekly wages will be rounded to the nearest 10 cents.

2. The Statutory Framework

General

[101] In conducting and completing a Review each financial year, the Panel must review the NMW and modern award minimum wages and make a NMW order 58 as set out in s.285(2) of the Act:

‘In an annual wage review, the FWC:

(a) must review:

(i) modern award minimum wages; and
(ii) the national minimum wage order; and

(b) may make one or more determinations varying modern awards to set, vary or revoke modern award minimum wages; and
(c) must make a national minimum wage order.’

[102] The Act requires the Panel to take into account a number of considerations in performing its functions. 59 The relevant statutory considerations are set out in the object of the Act,60 the modern awards objective61 and the minimum wages objective.62 The Panel must conduct the Review within the legislative framework of the Act.

[103] As part of the Review, the Panel considers both the setting of the NMW rate and whether to make any variation determinations in respect of modern award minimum wages. Each of these tasks is undertaken by reference to the particular statutory criteria applicable to each function.

National minimum wage order

[104] The NMW order applies to award/agreement free employees 63 and is dealt with in Division 4 of Part 2-6 of the Act.64 The NMW order sets both the NMW65 and special NMWs which apply to employees who are juniors; to whom training arrangements apply; or who have a disability.66

[105] An award/agreement free employee cannot be paid less than the rate of pay specified in the NMW order. Further, if an enterprise agreement applies to an employee and the employee is not covered by a modern award then the employee’s base rate of pay under the enterprise agreement must not be less than the rate specified in the NMW order. 67

[106] The minimum wages objective and the object of the Act apply to the review and making of a NMW order. 68 But the modern awards objective is not relevant to the review and making of a NMW order,69 as the making of such an order does not involve the performance or exercise of modern award powers.

Modern award minimum wages

[107] Modern award minimum wages are the rates of minimum wages in modern awards, including:

(a) wage rates for junior employees, employees to whom training arrangements apply and employees with a disability;
(b) casual loadings; and
(c) piece rates. 70

[108] The making of a NMW order and the review and variation of modern award minimum wages are separate, but related, functions. They are related because they both form part of the ‘safety net’ (see s.3(b)) and s.285(3) provides that in exercising its powers to set, vary or revoke modern award minimum wages, the Panel ‘must take into account the rate of the national minimum wage that it proposes to set in the Review’. It follows from s.285(3) that as part of the decision-making process in a Review the Panel must first form a view about the rate of the NMW it proposes to set (taking into account the statutory considerations relevant to that discrete task) and then take that proposed NMW rate into account (along with the other relevant statutory considerations) in exercising its powers to set, vary or revoke modern award minimum wage rates.

[109] As the Panel observed in the 2014–15 Review decision, 71 this does not suggest some sort of bifurcated process whereby the Panel first makes a NMW order (which includes setting the NMW), before turning its mind to exercising its review powers to set, vary or revoke modern award minimum wage rates. So much is clear from s.285(2) which suggests that the 2 tasks take place in the context of a single Review; s.285(3) which refers to the NMW rate the Panel proposes to set in the Review (as opposed to the NMW rate as currently set in a NMW order);72 and the statutory direction that both the NMW order73 and Review variation determinations come into operation on 1 July in the next financial year (absent exceptional circumstances74).

[110] We now turn to the principal statutory objectives to which we must have regard.

[111] The minimum wages objective applies to the exercise of functions and powers under Part 2-6 of the Act (which includes the Review) 75 and is set out in s.284 of the Act:

‘284 The minimum wages objective

What is the minimum wages objective?

(1) The FWC must establish and maintain a safety net of fair minimum wages, taking into account:

(a) the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and
(b) promoting social inclusion through increased workforce participation; and
(c) relative living standards and the needs of the low paid; and
(d) the principle of equal remuneration for work of equal or comparable value; and
(e) providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

This is the minimum wages objective.’

[112] The modern awards objective applies to the performance or exercise of ‘modern award powers’, 76 (which are defined to include the variation of modern award minimum wages),77 and is set out in s.134 of the Act:

‘134 The modern awards objective
What is the modern awards objective?
(1) The FWC must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

(a) relative living standards and the needs of the low paid; and
(b) the need to encourage collective bargaining; and
(c) the need to promote social inclusion through increased workforce participation; and
(d) the need to promote flexible modern work practices and the efficient and productive performance of work; and
(da) the need to provide additional remuneration for:

(i) employees working overtime; or
(ii) employees working unsocial, irregular or unpredictable hours; or
(iii) employees working on weekends or public holidays; or
(iv) employees working shifts; and

(e) the principle of equal remuneration for work of equal or comparable value; and
(f) the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and
(g) the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and
(h) the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

This is the modern awards objective.’

[113] Further, s.578(a) provides that the Panel must take into account the objects of the Act in performing its functions or exercising its powers in a Review.

[114] Sections 134, 284 and 578 of the Act each direct the Panel to ‘take into account’ certain specified considerations in conducting and completing a Review. In Peko-Wallsend, 78 the matters the decision maker must ‘take into account’ are those matters the decision maker is bound to consider and treat as matters of significance in the decision-making process.79

[115] There is a substantial degree of overlap in the considerations the Panel is required to take into account under the minimum wages objective and under the modern awards objective, though some of these considerations are not expressed in the same terms. 80

[116] In particular, there are differences in the expression of the economic considerations that the Panel is required to take into account under the modern awards objective and the minimum wages objective. 81 However, the underlying intention of the various economic considerations referred to in ss.134 and 284 is that the Panel takes into account the effect of its decisions on national economic prosperity and in so doing gives particular emphasis to the economic indicators specifically mentioned in the relevant statutory provisions.

[117] Both the minimum wages objective and the modern awards objective require the Panel to take into account:

• promoting social inclusion through increased workforce participation; 82



• relative living standards and the needs of the low paid; 83



• the principle of equal remuneration for work of equal or comparable value; 84 and



• various economic considerations. 85

[118] However, the modern awards objective also requires the Panel to take into account ‘the need to encourage collective bargaining’ 86 whereas the minimum wages objective makes no express reference to any such consideration. As we have mentioned it is the minimum wages objective, not the modern awards objective, which is relevant to setting the NMW rate. But as the Panel observed in the 2014–15 Review decision,87 the fact that the minimum wages objective does not require the Panel to take this consideration into account does not make much difference, in practice, to the Panel’s task. This is because the Panel is required to take into account the object of the Act and one of the stated means by which the object of the Act is given effect is ‘through an emphasis on enterprise level collective bargaining’ (s.3(f)). While not expressed in the same terms as in the modern awards objective, it is plain from s.3(f) and a reading of the Act as a whole that one of the purposes of the Act is to encourage collective bargaining. It is appropriate that the Panel takes that legislative purpose into account in setting the NMW rate.

[119] The review and variation of modern award minimum wages and making a NMW order are separate, though related, functions. However, for the reasons given, there is little practical difference between the range of considerations the Panel is obliged to take into account in performing these 2 functions. We return later to the relationship between the NMW and modern award minimum wages when we deal with the Australian Catholic Council for Employment Relations’ (ACCER’s) submission.

[120] The general matters the Panel must take into account in performing its functions can be conveniently grouped into three broad categories:

• economic; 88



• social; 89 and



• collective bargaining. 90

[121] We have considered these matters in making our decision and specifically address them in Chapters 4–8 of this decision. Chapter 3 discusses the positions of the parties to this Review.

[122] We now turn to deal with aspects of the proper construction of the modern awards objective and the minimum wages objective.

[123] The proper construction of the expression ‘a fair and relevant minimum safety net of terms and conditions’ 91 in the modern awards objective was the subject of some consideration in the 4 yearly review of modern awards – Penalty Rates – hospitality and retail industries decision (the Penalty Rates decision).92 Three points emerge from the consideration of that expression in the Penalty Rates decision.

[124] First, ‘fairness’ in the context of the modern awards objective is to be assessed from the perspective of the employees and employers covered by the modern award in question. 93

[125] Second, the word ‘relevant’ is intended to convey that a modern award should be suited to contemporary circumstances. As stated in the Explanatory Memorandum to what is now s.138:

‘… the scope and effect of permitted and mandatory terms of a modern award must be directed at achieving the modern awards objective of a fair and relevant safety net that accords with community standards and expectations.’ (emphasis added) 94

[126] Finally, as to the expression ‘minimum safety net of terms and conditions’, the Penalty Rates Full Bench rejected a proposition advanced in the joint employer reply submission that the reference to a ‘minimum safety net’ in s.134(1) means the ‘least … possible’ to create a ‘minimum floor’, noting that:

‘… the argument advanced pays scant regard to the fact the modern awards objective is a composite expression which requires that modern awards, together with the NES, provide ‘a fair and relevant minimum safety net of terms and conditions’. The joint employer reply submission gives insufficient weight to the statutory directive that the minimum safety net be ‘fair and relevant’. Further, in giving effect to the modern awards objective the Commission is required to take into account the s.134 considerations, one of which is ‘relative living standards and the needs of the low paid’ (s.134(1)(a)). The matters identified tell against the proposition advanced in the joint employer reply submission.’ 95

[127] We agree with the above observations and adopt them in our consideration of the modern awards objective. We are also of the view that the observations as to the meaning of ‘fair’ and ‘safety net’ in the modern awards objective apply with equal force to the meaning of those words in the minimum wages objective.

[128] In giving effect to these statutory objectives the Panel must take into account the particular considerations identified in ss.134(1)(a) to (h) (the s.134 considerations) and 284(1)(a) to (e) (the s.284 considerations). While the statutory considerations referred to must be taken into account it is important to bear in mind that these considerations inform the modern awards objective and the minimum wages objective, but they do not themselves constitute the relevant statutory objectives. The modern awards objective is to ‘ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions.’ 96 The minimum wages objective is to ‘establish and maintain a safety net of fair minimum wages.’97 These objectives are very broadly expressed and the notion of fairness is at the heart of both statutory objectives. As we have mentioned, fairness in this context is to be assessed from the perspective of the employees and employers covered by the NMW or the modern award in question.98

[129] As the Panel has observed in previous Review decisions, there is often a degree of tension between the economic, social and other considerations which the Panel must take into account. No particular primacy is attached to any of these considerations. 99 For example, a substantial wage increase may better address the needs of the low paid and improve the relative living standards of award-reliant employees, but it may (depending upon the prevailing economic circumstances) also reduce the capacity to employ the marginalised and hence not promote social inclusion through increased workforce participation. It is this complexity that has led the Panel to reject a mechanistic or decision rule approach to wage fixation, such as the adoption of real wage maintenance,100 and, more recently, to reject the adoption of a medium-term target for the NMW.101

[130] Further, as ABI observes in its submission in these proceedings:

‘Distilling the range of factors that must be considered by the Panel into a simple and clear strategy for approaching AWR decisions is not an easy exercise. The Act requires the Panel to weigh up the trade-offs presented by the inherent tensions in the statutory factors that it must take into account.’ 102

[131] The submissions made in this Review have raised five discrete issues which relate to the statutory framework, in particular:

1. the setting of the NMW—‘beneficial’ legislation;




2. the modern awards objective— ‘a fair and relevant minimum safety net’;

3. the setting of the NMW and modern award relativities;




4. whether the Panel made an ‘error of law’ in the 2015–16 Review decision; and




5. proposals that the Panel should consider award, industry or regional variations.

(i) Beneficial legislation

[132] ACCER submits that the provisions of the Act which deal with the setting of the NMW should be ‘treated as beneficial legislation and should not be construed or applied narrowly’. 103

[133] The statutory provisions relating to the Review and to NMW orders are set out in Divisions 3 (ss.284–292) and 4 (ss.293–299) of Part 2-6 of the Act. The purpose of Chapter 2 is to prescribe minimum terms and conditions of employment for national system employees (including those terms and conditions arising from a NMW order). 104

[134] A remedial or beneficial provision is one that gives some benefit to a person and thereby remedies some injustice. 105 We accept that it is appropriate to characterise the statutory provisions relating to the variation of the NMW as remedial or beneficial provisions. They are intended to benefit national system employees. Further, as the Panel observed in its Preliminary Decision dealing with the proposed adoption of a medium-term target for the NMW:

‘The effect of a fair and relevant safety net is to raise wages received by the low paid above those that they would receive in the absence of enforceable minimum wages.’ 106

[135] A NMW order operates in the same way. An award/agreement free employee cannot be paid less than the rate specified in the NMW order and hence, in practice, the effect of such an order is to raise the wages received by the lowest paid award/agreement free employees above what they would receive in the absence of such an order. Contrary to the submissions advanced by Ai Group, it is appropriate to regard such a legislative scheme as remedial or beneficial. It is intended to create a regulatory instrument which intervenes in the market setting minimum wages, to lift the floor of such wages.

[136] The proper approach to the construction of remedial or beneficial provisions was considered by the Full Bench in Bowker and others v DP World Melbourne Limited T/A DP World, Maritime Union of Australia and others 107 (‘Bowker’). In Bowker the Full Bench said:108

‘The characterisation of these provisions as remedial or beneficial has implications for the approach to be taken to their interpretation. As the majority (per Gibbs CJ, Mason, Wilson and Dawson JJ) observed in Waugh v Kippen:

“...the court must proceed with its primary task of extracting the intention of the legislature from the fair meaning of words by which it has expressed that intention, remembering that it is a remedial measure passed for the protection of the worker. It should not be construed so strictly as to deprive the worker of the protection which Parliament intended he should have.”

Any ambiguity is to be construed beneficially to give the fullest relief that a fair meaning of its language will allow, provided that the interpretation adopted is ‘restrained within the confines of the actual language employed that is fairly open on the words used.’ As their Honours Brennan CJ and McHugh J put it in IW v City of Perth:

“...beneficial and remedial legislation, like the [Equal Opportunity] Act, is to be given a liberal construction. It is to be given ‘a fair, large and liberal’ interpretation rather than one which is ‘literal or technical’. Nevertheless, the task remains one of statutory construction. Although a provision of the Act must be given a liberal and beneficial construction, a court or tribunal is not at liberty to give it a construction that is unreasonable or unnatural.”

If the words to be construed admit only one outcome then that is the meaning to be attributed to the words. However if more than one interpretation is available or there is uncertainty as to the meaning of the words, such that the construction of the legislation presents a choice, then a beneficial interpretation may be adopted.’ (footnotes omitted)

[137] We adopt the above remarks and apply them to the matter before us.

[138] Section 15AA of the Acts Interpretation Act 1901 is also relevant. It requires that a construction that would promote the purpose or object of the Act is to be preferred to one that would not promote that purpose or object (noting that s.40A of the Act provides that the Acts Interpretation Act 1901, as in force at 25 June 2009, applies to the Act). The purpose or object of the Act is to be taken into account even if the meaning of a provision is clear. When the purpose or object is brought into account an alternative interpretation may become apparent. If one interpretation does not promote the object or purpose of the Act, and another does, the latter interpretation is to be preferred. Of course, s.15AA requires us to construe the Act, not to rewrite it, in the light of its purpose. 109

[139] Despite its beneficial purpose a statutory provision may be constrained in its operation if it represents a compromise between competing intentions. 110 As Gleeson CJ observed in Carr v Western Australia:

‘Another general consideration relevant to statutory construction is one to which I referred in Nicholls v The Queen. It was also discussed, in relation to a similar legislative scheme, in Kelly v The Queen. It concerns the matter of purposive construction. In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. As to federal legislation, that approach is required by s 15AA of the Acts Interpretation Act 1901 (Cth) ("the Acts Interpretation Act"). It is also required by corresponding State legislation, including, so far as presently relevant, s 18 of the Interpretation Act 1984 (WA). That general rule of interpretation, however, may be of little assistance where a statutory provision strikes a balance between competing interests, and the problem of interpretation is that there is uncertainty as to how far the provision goes in seeking to achieve the underlying purpose or object of the Act. Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. For a court to construe the legislation as though it pursued the purpose to the fullest possible extent may be contrary to the manifest intention of the legislation and a purported exercise of judicial power for a legislative purpose.’ 111 [Footnotes omitted]

[140] Similar observations are made in Victims Compensation Fund v Brown 112 and in Baytech Trades Pty Ltd v Coinvest Ltd.113

[141] It seems to us that the statutory provisions relevant to the fixation of the NMW plainly seek to strike a balance between competing interests. So much is clear from the range of considerations the Panel is required to take into account in giving effect to the minimum wages objective (for example compare s.284(1)(a) and (c)). It is also clear from the minimum wages objective itself—to “establish and maintain a safety net of fair minimum wages”. Fairness in this context is to be assessed from the perspective of the employees and employers covered by the NMW order. The object of the Act also speaks to multiple legislative purposes. Section 3 provides that the object of the Act ‘is to provide a balanced framework for cooperative and productive workplace relations that promotes national prosperity and social inclusion for all Australians’ (emphasis added), by the means specified in sections 3(a) to (g).

[142] It follows that while the statutory provisions relating to the Review and to NMW orders are properly characterised as remedial or beneficial provisions, the extent to which they are to be given ‘a fair, large and liberal’ interpretation in pursuit of that broad purpose is constrained by the fact that the relevant provisions seek to strike a balance between competing interests.

(ii) The modern awards objective – ‘a fair and relevant minimum safety net’.

[143] The ACTU drew attention to the observations in the Penalty Rates decision about the meaning of the word ‘relevant’ in the modern awards objective. The relevant passage is at [120] of the Penalty Rates decision:

‘Second, the word “relevant” is defined in the Macquarie Dictionary (6th Edition) to mean “bearing upon or connected with the matter in hand; to the purpose; pertinent”. In the context of s.134(1) we think the word “relevant” is intended to convey that a modern award should be suited to contemporary circumstances. As stated in the Explanatory Memorandum to what is now s.138:

‘… the scope and effect of permitted and mandatory terms of a modern award must be directed at achieving the modern awards objective of a fair and relevant safety net that accords with community standards and expectations.’ 114

[144] In respect of the above proposition, the ACTU submits:

‘In essence, the proposition is that the creation by statute of a regulatory function to centrally set and maintain “fair” minimum wages is a labour market intervention that stems from the legislature taking the position that in the absence of such an intervention, the minimum wages of employees would not (or at least might not) be fair. If one accepts that proposition, it cannot follow that “relevant” centrally determined minimum wages—minimum wages that are suited to contemporary circumstances—must always follow, predict or seek to reproduce the trends observed in market wages. Rather, contemporary circumstances may demand that the intervention enabled by the legislation be exercised to a much fuller extent, including an extent that results in a major disparity between market wage movements and movements in minimum wages.’ 115

[145] We agree with the ACTU’s submission above. In particular, the requirement that modern awards provide a fair and relevant minimum safety net does not imply that the variation of modern award minimum wages must ‘always follow, predict or seek to reproduce the trends observed in market wages’. 116 One of the considerations the Panel must take into account in giving effect to the modern awards objective is ‘relative living standards’.117 Trends in market wages are relevant for that purpose, but they are not determinative. As we have mentioned, the range of considerations we are required to take into account calls for the exercise of broad judgement rather than a mechanistic or decision rule approach to wage fixation.

(iii) The setting of the NMW and modern award relativities

[146] ACCER points to the fact that in the past 6 Review decisions the Panel has increased both the NMW and modern award minimum wages by the same percentage amount and contends that, since the 2011–12 Review decision, the Panel has applied what ACCER describes as a ‘wage relativities policy’, which it submits has been contrary to law. 118 Further, ACCER submits that in applying such a policy the Panel has failed to set the NMW in accordance with the terms of the Act. The gravamen of ACCER’s argument is set out at paras. 70–71 of its submission:

‘70. The FWC‘s obligation under the Fair Work Act to take into account the ―needs of the low paid‖, when setting the NMW (see section 284(1) (c)) and award rates of pay (see section 134(1)(a)) are effectively disregarded by this policy. The policy of maintaining relativities set in the past, and based on relativities established prior to the enactment of the Fair Work Act, is not based on the terms of the legislation. The obligation on the FWC is to take into account the needs of the low paid unconstrained by wage relativities within award classifications. In applying the policy the FWC has failed to give any or any proper consideration and weight to the needs of the low paid.

71. Furthermore, the application of the policy has meant that the NMW has not been set independently of the operation of the award system, as the legislation intends. The Fair Work Act intends that the NMW will be established as a general wage entitlement upon which awards may provide further minimum wage entitlements covering "skill-based classifications and career structures"; see section 139(1)(a)(i). It would be permissible for the FWC to develop policies about wage relativities within those award classifications, but it would be impermissible for those policies to constrain the setting of the NMW and to constrain the obligation on the FWC to take into account the needs of the low paid, as it is required to do under sections 284(1) and 134(1).’ 119

[147] The argument put relies on the different statutory considerations involved in setting the NMW and modern award minimum wages and the proposition that the ‘needs of the low paid’ have been effectively disregarded by the adoption of the ‘wage relativities policy.’ ACCER characterises the NMW as a ‘general legal right conferred on Australian workers, independent of, and not ancillary to, the award system’ 120 and contends that ‘as a general safety net entitlement the NMW should not [be] set by reference to wage relativities that may be set by awards and/or collective bargains’.121

[148] We reject the submission advanced by ACCER. It is fundamentally misconceived, for 2 reasons.

[149] First, we accept that there is no legislative requirement to set the NMW rate at the same level as the lowest modern award minimum wage rate. The setting of the NMW rate is a discretionary decision which takes into account the statutory considerations relevant to that discrete task. However, as we have mentioned, there is little practical difference between the range of considerations the Panel is obliged to take into account in making a NMW order and in reviewing and varying modern award minimum wages. In such circumstances it is hardly surprising that the 2, separate, functions have yielded the same result.

[150] Second, ACCER’s submission seeks to elevate one of the considerations the Panel is obliged to take into account—the needs of the low paid—above all others. ACCER appears to take 2 passages from previous Review decisions out of context and combine them into a composite formulation which it describes as ‘the operational objective of the NMW’ 122.

[151] The first passage is from the 2012–13 Review decision:

‘The minimum wages objective and the modern awards objective both require us to take into account two particular matters, relative living standards and the needs of the low paid. These are different, but related, concepts. The former, relative living standards, requires a comparison of the living standards of award-reliant workers with those of other groups that are deemed to be relevant. The latter, the needs of the low paid, requires an examination of the extent to which low-paid workers are able to purchase the essentials for a “decent standard of living” and to engage in community life. The assessment of what constitutes a decent standard of living is in turn influenced by contemporary norms.’ 123

[152] The second passage is from the 2015–16 Review decision:

‘Measures of poverty, or the risk of poverty,    are relevant in assessing the needs of the low paid because poverty entails an inability to buy the material resources required to meet basic needs. If the low paid are forced to live in poverty then their needs are not being met and those in full-time employment can reasonably expect a standard of living that exceeds poverty levels. Information about the low paid and award-reliant employees at risk of poverty is also relevant in assessing relative living standards, given poverty measures typically involve benchmarks of community incomes or expenditure standards.’ 124

[153] ACCER’s composite formulation, which it describes as the ‘operational objective of the NMW’, is in the following terms:

‘Full time workers have a reasonable expectation of a standard of living that will be in excess of poverty and one which will enable them to purchase the essentials for a ‘decent standard of living’ and engage in community life, assessed in the context of contemporary norms.’ 125

[154] While we do not resile from either of the passages referred to above it is important to bear in mind that these observations were made in the context of the Panel’s consideration of one of the various statutory considerations we are required to take into account. ACCER’s submission suffers from the elevation of one consideration—‘relative living standards and the needs of the low paid’—above all others.

[155] As noted in previous Review decisions, the Act requires the Panel to take into account all of the relevant statutory considerations, 126 and the relative living standards and needs of the low paid are but ‘one of a number of considerations that [the Panel] must take into account.’127 The legislature has not attached any particular primacy to any of the considerations we are required to take into account.128

[156] In our decision of 7 April 2017 we rejected a proposal for the adoption of a medium term target for the NMW for similar reasons:

‘Those supporting a medium-term target for the NMW do so principally for the reason that they believe a target would increase the weight given to the requirements for the Panel to set rates that ‘establish and maintain a safety net of fair, relevant and enforceable minimum wages’; and to consider the relative living standards and the needs of the low paid’ as the Panel considers the full range of matters that it is required to take into account. Those who oppose a medium-term target share this view, that such a target would give greater weight to these criteria, and oppose it on those grounds (among others)…

As we have mentioned, no particular primacy is attached to any of the considerations identified in the modern awards objective (s.134(1)(a)–(h)) or in the minimum wages objective (s.284(1)(a)(e)). The adoption of the proposed target would, in our view, have the effect of elevating one statutory consideration (‘relative living standards and the needs of the low paid’) above all others on an ongoing basis, rather than requiring consideration of that matter in the social and economic context of each review and weighting it accordingly relative to the other considerations. As we have mentioned while the relevant statutory considerations must be taken into account it is important to bear in mind that they inform the modern awards objective and the minimum wages objective, but they do not themselves constitute the relevant statutory objectives.’ 129

[157] For completeness we note that the suggestion that the ‘needs of the low paid’ have not been taken into account in past Review decisions is devoid of merit. Each of these decisions referred to by ACCER dealt directly with ‘relative living standards and the needs of the low paid’, as required by sections 134(1)(a) and 284(1)(c) of the Act.

[158] ACCER also requests that in next year’s Review proceedings the Panel invite submissions from interested parties on ‘the issues and options regarding the adjustment of the NMW to a level where [it] has an impact on lower paid award classifications’. 130 ACCER also advances the following submission:

‘ACCER‘s consistent argument has been that, in the transition to a fair and sufficient NMW, annual increases in the NMW should be greater than those set for award classifications. In some awards there are classifications and wage rates that are equal to or close to the NMW so that, unless further action is taken in respect of them, those award rates would be overtaken or their margins over the NMW will be reduced. This would be a matter to be considered by the FWC once it had decided on the increase in the NMW. ACCER‘s preference would be for consequential adjustments being made to award rates, rather than lower paid work classifications being made redundant by being overtaken by an adjusted NMW.’ 131

[159] It seems to us that there is an evident inconsistency between the propositions in the first and last sentences in the above extract. If ACCER’s proposal was accepted—and annual increases in the NMW would be greater than the increases in modern award minimum wages—then it would inevitably, and immediately, call into question the utility of some lower modern award classification levels as the rates specified for those levels would be lower than the NMW.

[160] The desire of ACCER to give primacy to increasing the NMW, as distinct from modern award minimum wages, is at odds with the impact that each can be expected to have on meeting the needs of the low paid. The Australian Government provided estimates of the number of adults who are paid according to the NMW, and according to an award. These data show that the 66 100 adults identified as ‘national minimum wage employees’ comprise 5 per cent of all low-paid workers and 33 per cent of all adult workers who are paid at the same rate as the NMW, or lower. 132

[161] We consider that there is a real possibility that even these proportionately low numbers are an overestimate. The Miscellaneous Award 2010 covers employers and their employees who fall within 4 generically-defined classifications who are in an industry not covered by any other modern award. The wage rate for the lowest paid classification (Level 1) is aligned with the NMW. The exceptions to the broad coverage of the Miscellaneous Award are unlikely to have application to any significant number of low-paid employees. 133 It is therefore difficult to identify any employees who are not covered by a modern award and to whom the NMW applies. It appears highly likely that many employers are not aware that their employees are covered by the Miscellaneous Award, and this may be reflected in the award reliance statistics.

[162] Even if the number of NMW-reliant workers has been accurately estimated by the Australian Government, it remains clear that the level of the lower award minimum rates affects many more low-paid workers than does the level of the NMW. An adjustment of the NMW that was not also reflected in the lower award minimum rates would be of no value to the overwhelming majority of low paid workers who are paid according to a modern award, an enterprise agreement or by an individual arrangement that makes reference to a modern award. Even the 67 per cent of adult workers who are paid the NMW rate but are on a modern award or an enterprise agreement would not gain from a rise in the NMW, unless it was also reflected in award rates.

[163] The Australian Government notes that 45 of the 122 modern awards contain rates of pay which are equivalent to the NMW. 134 Generally these are the lowest classification rates for full-time adult employees and, for most of these awards, may be regarded as ‘transitional rates’, in that they are limited to an initial period of employment (usually 3 months) or to the attainment of specific competencies.

[164] If the NMW was set at a level above these modern award minimum wage levels it would raise for consideration whether the maintenance of a modern award minimum wage at a level below the NMW meets the minimum wages objective. There is also the added complication of any potential limitation on the Panel’s power to vary the classification structures in modern awards (as opposed to the variation of modern award minimum wages).

[165] These issues warrant some consideration and they can be addressed in the submissions of all parties in next year’s Review.

(iv) Alleged ‘error of law’

[166] ACCER submits that Table 5.7 (at paragraph 436) of the 2015–16 Review decision was erroneous and, further, the Panel’s use of the material did not comply with s.289 of the Act. 135

[167] The Panel published a Statement on 26 July 2016 136 correcting the public record as to the error in the calculation of the figures for the December 2010 poverty lines in Table 5.7. We do not propose to add anything further to what has been said in that Statement.

[168] As to whether there has been any non-compliance with s.289 of the Act, it is not the function of Review proceedings to embark on some sort of judicial review of past Panel decisions.

[169] To ensure that such issues do not arise in the future all charts, tables and research referred to a Review decision will be published in either the statistical report, the research reference list or in submissions made to the Review.

(v) Award, industry or regional variations

[170] The Panel takes into account the circumstances of different regions, industries and sectors as part of its broader consideration of the national economy. In addition, the Panel has scope to consider whether exceptional circumstances on the grounds of natural disaster should result in delay or deferral of the operation of a variation to a modern award or adjustment of the NMW and has outlined the process for such considerations in a number of previous Reviews.

[171] In addition to submitting that the Panel should award a 1.2 per cent increase in the NMW, the Australian Retailers Association (ARA) again submitted that the Panel should consider any increase to award minimum rates on an award-by-award basis and ‘provide an interim decision or statement prior to handing down a final decision’. 137

[172] The Act does not compel the variation of modern award minimum wages in all modern awards. The Panel has a discretion to vary some or all modern award minimum wages in the context of a Review. However, in exercising that discretion considerations of fairness and stability tell against an award-by-award approach to minimum wage fixation. As the Panel observed in the 2012–13 Review decision:

‘If differential treatment was afforded to particular industries this would distort award relativities and lead to disparate wage outcomes for award-reliant employees with similar or comparable levels of skill ... It is also relevant that in establishing and maintaining the minimum wages safety net, the Panel must take into account the principle of equal remuneration for work of equal or comparable value. Such a principle supports the determination of consistent minimum rates for work of equal or comparable value. The maintenance of consistent minimum wages in modern awards and the need to ensure a stable and sustainable modern award system would be undermined if the Panel too readily acceded to requests for differential treatment.
…

Enterprise level collective bargaining is the primary means by which the statutory framework envisages differential treatment based on the circumstances in particular enterprises, which would be influenced by relevant sectoral considerations.’ 138

[173] As noted in the 2015–16 Review decision, in response to the same submission from ARA, the Panel has previously considered submissions to the effect that it should conduct a modern award-by-modern award review of minimum wages and that this should result in a different, lower, increase or no increase at all in specific industries or modern awards. 139 These matters were fully canvassed in the 2011–12, 2012–13, 2013–14 and 2014–15 Review proceedings.140

[174] As was the case in its submission to the 2015–16 Review, ARA has again failed to advance a merit argument in favour of an alternative construction of the relevant provisions of the Act. The Panel is not persuaded to depart from the conclusions reached in past Review decisions in respect of this issue.

[175] The Panel has also previously dealt with the proposition that it should hand down an interim decision or statement prior to handing down a final decision. We infer from the ARA’s submission in the present proceedings that such an interim decision process is intended to allow individual employers or their representatives to then seek differential treatment on an award, sector or some other basis.

[176] The Panel has repeatedly noted the practical difficulties associated with such an approach having regard to the requirements in the Act regarding the time for completion of each AWR, commencement of the minimum wage determinations and the NMW order and publication of any variation to modern award minimum wages. 141 ARA has made no attempt to address any of these difficulties in its submission.

[177] The Panel is not persuaded to depart from the conclusion reached in the 2013–14 Review decision, and reaffirmed in the 2015–16 Review decision, that an interim decision mechanism is neither necessary nor practical. 142

[178] We now turn to consider the submissions relating to the circumstances pertaining in particular states.

[179] The Western Australian Government submitted that, while the Commission is required to consider the economic circumstances of the nation as a whole, it is appropriate that due consideration is given to the particular conditions in Western Australia, which is currently experiencing weaker conditions in its domestic economy, resulting in a softer labour market and an increased rate of unemployment. 143 Business SA pointed to the economic challenges currently facing South Australia and submitted that because Australia’s economy is undergoing transition, any minimum wage decision will impact some industries and regions more than others.144

[180] The Chamber of Commerce and Industry Queensland (CCIQ) again submitted that the Panel should consider circumstances where an increase in the NMW may be deferred for Queensland farmers, agri-business and small business affected by ongoing impacts of drought. 145 CCIQ also seeks deferral of an increase in the NMW on the basis of the effects of Cyclone Debbie which impacted Northern Queensland in March 2017.146 CCIQ urges the Panel to consider that extenuating circumstances warrant a deferral of any increase in the minimum wage for farmers, agri-business and small businesses impacted by drought and cyclone this year, for a ‘given period’.147

[181] CCIQ has made very similar if not identical submissions in past Reviews. 148 In our decision in the 2015–16 Review, we observed in relation to a similar submission by CCIQ that it did not make clear whether the deferral sought relates to either the NMW or modern award minimum wage or both.149 We also referred to earlier Review decisions in 2013–14 and 2012–13 in which we set out the requirements that proponents of an exemption or deferral of wage increases on the grounds of natural disasters must meet.150 These can be summarised as follows:

● a deferral claim may be granted in respect of one or more modern awards or in respect of particular regions covered by modern awards, provided that we are satisfied that there are exceptional circumstances justifying such a course;
● a claim must clearly indicate whether a complete exemption is sought from any minimum wage increase or, if a deferral is sought, the period of the deferral;
● proponents of a deferral or exemption should advance a mechanism for the proper identification of the employers and employees affected and to whom the exemptions should apply;
● the declaration of natural disasters by government cannot, of itself, be regarded as constituting ‘exceptional circumstances’ for the purpose of s.286;
● information about the effect of the disaster event on different classes of employers and enterprises and the assistance provided by government are necessary elements in any case seeking to establish exceptional circumstances;
● any assessment of the effect of a natural disaster must necessarily include an assessment of the impact upon employees who would bear the cost of a deferral of or exemption from a minimum wage increase; and
● sufficient detail is required so that if exceptional circumstances were found to exist, any order made would comply with the statutory obligation that it be ‘limited just to the extent necessary because of the particular situation to which the exceptional circumstances relate’. 151

[182] As we have previously stated, we recognise that natural disaster inflicts hardship on many businesses, particularly small businesses and that deferral of any rise in minimum wages may contribute to easing pressure on businesses. However, we also recognise that natural disaster inflicts hardship on employees and their families due to loss of wages and damage to property and that in some cases the employees affected may be among the lowest paid in the community.

[183] In relation to the CCIQ submission to the current Review, we accept that there are significant numbers of businesses in Queensland which continue to be affected by drought. We also accept that Cyclone Debbie has had a devastating effect on businesses in other areas of Queensland. However, as has been the case in previous Reviews, we are not assisted by the submission of CCIQ which continues to suffer from the deficiencies that we have identified in previous decisions.

[184] Again CCIQ has not made clear whether the deferral relates to the NMW or to modern award wages, or both. CCIQ has not proposed any mechanism to properly identify the employers affected and to whom the deferral should apply. Other than indicating that there should be a deferral of any wage increase for farmers and agribusinesses in the regions which have been affected by drought or cyclone, no other information is provided about who these employers may be. There is no detail about the employees they may engage. The submission does not identify which modern award or awards these employers and employees may be covered by nor is there any indication if the NMW order would apply to the employees.

[185] The submission provides little material upon which we could make a finding that exceptional circumstances exist and that they are such as to warrant a deferral of any increases to minimum wages. There is also no material on the impact of any potential deferral upon the employees concerned. We note that there are many employees who have likely been adversely affected by the natural disasters cited in the CCIQ submission. In particular, employees in the regions impacted by Cyclone Debbie have likely been stood down without pay, which can only have compounded the effects of that event on those employees. No information is given by CCIQ about any government assistance that may be provided to the relevant employers or employees. Further, we note that CCIQ has again sought an exemption for a ‘given period’ without identifying the period for which the exemption is sought or proposing a mechanism by which such period can be identified.

[186] We are not persuaded that CCIQ has established that there are ‘exceptional circumstances’ which justify an operative date of the NMW order and modern award minimum wage increases we have decided to be later than 1 July 2017. The considerations CCIQ has raised are, however, relevant matters and we have taken them into account in our consideration of the economy in Chapter 4.

3. The Parties’ Proposals

[187] This Chapter summarises the parties’ proposals in respect of adjustments to the NMW and modern award minimum wages. The Panel received submissions from the Australian Government, several state governments, and bodies representing the interests of employees, employers and other groups. The quantum and the form of the proposed increase to the NMW and/or modern award wages varied significantly among these parties. Proposals for flat dollar amounts, percentage increases and a tiered approach were submitted and one party submitted that no increase be awarded.

[188] The Victorian Government, the South Australian Government and the Federal opposition submitted that the Penalty Rates decision be taken into account in the Panel’s determination. 152 The proposal from United Voice responded to the Panel’s decision regarding the adoption of a medium-term target for the NMW.153 As in previous Reviews, CCIQ proposed the deferral of any increase arising from this decision for farmers, agri-business and small businesses affected by drought and cyclones154 and ARA recommended that any increase should be considered on an award-by-award basis.155 The South Australian Government proposed that, upon the implementation of the Penalty Rates decision, a special national minimum wage be set for the ‘specific class of employees’ affected.156 These issues are addressed separately in Chapters 1 and 2.

[189] A summary of proposed minimum wages adjustments is set out at Appendix 1.

[190] We note that the increases proposed by a number of parties in their initial submissions were based—in whole or part—upon the 1.5 per cent increases in the CPI over the year to the December quarter 2016. Later CPI data showed an increase of 2.1 per cent over the year to the March quarter 2017 (and a 1.8 per cent increase in the underlying rate). On 3 May 2017 the Commission published Questions on Notice, with replies due on 12 May 2017. In light of the more recent CPI data one of the questions put to all parties was:

‘Given that a number of parties referred to the CPI in reaching their proposed increase to the NMW and/or award minimum wages, with some parties suggesting that their proposal provided a real increase in the standard of living of award-reliant employees, do any parties seek to revise their proposal?’

[191] None of the principal parties sought to revise their proposal. 157

Proposals for a tiered increase

[192] The ACTU proposed a tiered approach, consisting of a flat dollar increase of $45.00 per week to the NMW and to modern award minimum wages up to and including the C10 rate and an increase to all modern award wages above the C10 rate of 5.7 per cent. 158 The ACTU submitted that its proposal would ensure the largest wage rises, in percentage terms, go to the lowest-paid workers while preventing any further erosion of the skill-based wage relativities above the C10 tradepersons’ rate.159

[193] ACCER also proposed a tiered increase and recommended increasing the NMW by $37.30 per week and modern award minimum wages by $30.70 per week. 160 ACCER submitted that the proposal was ‘to provide relatively more to those most in need’161 and that the proposal would maintain the real wages of workers paid at higher award classification rates.162

Proposals for a percentage increase

[194] The Victorian and Queensland Governments proposed a minimum increase of 2.5 per cent to the NMW and all modern award minimum wages. 163 The Victorian Government stated that the effect of the Penalty Rates decision on many low-paid workers should also be taken into account.164

[195] United Voice proposed an increase of 13.5 per cent to the NMW ‘with follow-on percentage increases to all award minimum wages’ 165 and submitted that the increase ‘is a significant and necessary step to remedy the cumulative impact successive Review decisions have had on low paid workers and to arrest the long term decline in their relative living standards’.166 During the course of final consultations on 17 May 2017, United Voice clarified that it would be content with any approach as to how this would be flowed on in modern award minimum wages.167

[196] The Australian Business Industrial and the NSW Business Chamber Ltd (ABI and NSWBC) submitted that the Panel should be ‘cautious’ in its approach and that any increase to the NMW and modern award minimum wages should not exceed 1.8 per cent. 168

[197] Ai Group proposed a ‘modest’ increase of 1.5 per cent to the NMW and all modern award minimum wages. 169 NRA and HA also recommended an increase of 1.5 per cent to the NMW.170

[198] The Australian Chamber of Commerce and Industry (ACCI) urged the Panel to ‘exercise genuine caution and restraint’ 171 and proposed an increase of no more than 1.2 per cent to the NMW and modern award minimum wages.172

[199] The Australian Federation of Employers and Industries (AFEI), ARA and Victorian Automobile Chamber of Commerce (VACC) supported ACCI’s submission and proposed an increase of 1.2 per cent to the NMW. 173 The Motor Trade Association of South Australia (MTA-SA) also supported ACCI’s submissions but proposed an increase of ‘no greater than 1.2%’.174 AFEI and MTA-SA submitted that the increase should also apply to all modern award minimum wages.175

[200] Master Grocers Australia (MGA) proposed an increase of not more than 1.1 per cent to the NMW and modern award rates, or $8.15 based on a 38-hour working week in the General Retail Industry Award 2010. 176 MGA also submitted that the Penalty Rates decision ‘should not be given any significant consideration’ in the current Review.177

[201] NFF proposed an increase of up to 1.0 per cent and submitted that ‘[a]djustments to the national minimum wage traditionally flow on to all modern award classifications, without exception.’ 178

Proposals for a flat dollar increase

[202] CCIQ recommended what it characterised as a ‘modest increase’ to the NMW and modern award minimum wages of $8.10 per week, 179 while the Chamber of Commerce and Industry Western Australia (CCIWA) supported ACCI’s proposed increase of $8.10 per week to the NMW and recommended that any variation to modern award rates of pay should occur as a flat dollar increase180 without providing a quantum. CCIWA submitted that ‘[i]n the current environment, we believe that a greater focus should be given to the potential negative implications that a compounding increase in wage rates will have on the utilisation of employees given the high level of underemployment’.181

[203] The South Australian Wine Industry Association (SAWIA) submitted that the Panel consider ‘only a small flat increase that is fair to all employees and capped no higher than the rate of inflation’. 182

Proposals specifying no quantum

[204] A number of parties made no submission as to the quantum of any variation to the NMW or minimum rates in modern awards, including the Australian Government, several state governments, the Federal opposition, the Australian Council of Social Service (ACOSS), the Housing Industry Association (HIA) and the Australian Road Transport Industrial Organisation (ARTIO).

[205] The Australian Government submitted that ‘the Panel should take a cautious approach, taking into account the uncertain economic outlook and the need to boost employment and job creation, particularly for young people and the low-skilled.’ 183 The New South Wales Government also submitted that the Panel take a ‘cautious approach to setting the minimum wage’184 and submitted that ‘[a]ny adjustment to the minimum wage should have regard to the need to maintain current economic and labour market performance’.185

[206] The Federal opposition expressed support for a ‘strong and appropriate minimum wage’ 186 that takes into account the impact of the reduction in Sunday penalty rates, the changes in living costs, the decline in the minimum wage bite over time, as well as the economic environment since the 2015–16 Review.187

[207] The South Australian Government submitted the Panel consider ‘increasing national minimum wages taking into account the current economic context … [and] the broader context of ensuring that the real value of minimum wages is maintained’. 188 The Western Australian Government encouraged the Panel ‘to award a fair and economically sustainable wage increase that will help to protect the living standards of the low paid and encourage their participation in the workforce.’189

[208] ACOSS submitted that ‘[t]here is scope to significantly increase minimum wages without impacting employment growth, and a need to do so to reduce poverty and the gap between the NMW and median earnings.’ 190 As in previous Reviews, ACOSS submitted that decisions ‘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.’191

[209] Australian Hotels Association and Tourism Accommodation Australia (AHA and TAA) and Business SA generally supported ACCI’s submissions, without nominating a particular quantum. 192

[210] HIA submitted that the Panel’s decision should ‘encourage both investment and employment’ 193 and commented that housing construction activity has slowed and the ‘current conditions affecting apprentice employment deserves special consideration’.194 ARTIO submitted that any increase should be ‘modest’195 and that the Panel should be ‘guided by signs of the overall state of the Australian economy, especially the labour market’,196 such as the fall in the labour force participation rate and ‘historically modest’ wages growth.197 

Proposals specifying no increase

[211] Restaurant and Catering Australia (R&CA) submitted that the Panel should decide to award no increase in the NMW or modern award minimum wages 198 and submitted that the Panel should have ‘regard to Australia’s ability to compete internationally, particularly from a tourism standpoint, the increased cost of wages, and importantly, the impact on future employment growth’.199

4. The Economy

[212] The minimum wages objective and the modern awards objective require the Panel to take into account the effect of its decisions on national economic prosperity and in doing so to give particular emphasis to the economic indicators specifically mentioned in the relevant statutory provisions. We have taken account of the economic information provided by parties in submissions, data published in the Statistical report, research published by the Commission, data from the Treasury and the RBA.

[213] Our approach to the economic information, published data and forecasts in the context of the relevant statutory provisions concerning economic matters was set out in the 2015–16 Review decision. 200

[214] In this Chapter we discuss trends in international and domestic economic growth, productivity and unit labour costs, business conditions, inflation, wages, various aspects of the labour market, the particular circumstances of the most award-reliant industries, and the economic outlook.

Economic growth

[215] Real GDP rebounded in the December quarter 2016 to grow by 1.1 per cent in the quarter and 2.4 per cent over the year after falling by 0.5 per cent in the September quarter (Chart 4.1). Annual GDP growth was a little below the average over the 10 years to the December quarter. Because of the volatility in quarterly data, particularly evident in 2016, we pay particular attention to annual changes.

[216] The RBA stated that GDP growth in the December quarter 2016 was higher than expected due to an increase in mining investment and confirmed that the decrease in the September quarter reflected temporary factors including disruption to coal supplies and bad weather. The RBA added that contributors to growth over 2016 were resource exports, household spending, business and dwelling investment and low interest rates. 201 GDP growth over 2016 was slightly lower than estimates of potential output growth, which the RBA suggested was consistent with a subdued labour market and low inflation.202

Chart 4.1: Economic growth, annual and quarterly rates

Source: Statistical report, Chart 1.1; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

[217] Over the year to the December quarter 2016, household consumption grew by 2.6 per cent and contributed 1.5 percentage points to national growth. With compensation of employees rising at the slower rate of 1.5 per cent, the growth in consumption was financed partly by a progressive decline in the savings rate from 6.2 per cent in the December quarter 2015 to 5.2 per cent in the December quarter 2016. Public investment grew by 11.9 per cent and contributed 0.5 percentage points to total growth over the year. Exports rose by 8.9 per cent, contributing 1.8 percentage points to growth. At the industry level, Agriculture, forestry and fishing, Mining and Professional, scientific and technical services made significant contributions to growth over the year. 203

[218] GDP growth in Australia outperformed the average of the major 7 OECD countries across 4 of the 5 quarters to the December quarter 2016 (Chart 4.2).

Chart 4.2: International comparisons of quarterly GDP growth

Source: Statistical report, Chart 1.2; OECD (2017), Quarterly GDP (indicator), <http://data.oecd.org/gdp/quarterly-gdp.htm>.

[219] A number of submissions noted that the Australian economy continues to transition from the investment phase to the production phase of the mining boom. 204 This has been accompanied over recent years by the falling terms of trade. However, more recently, the terms of trade have increased by a strong 15.6 per cent over the year to the December quarter 2016. This has had an impact on RNNDI, which rose over 2016 after falling in 2015 and being relatively stable for some years before then (Chart 4.3). The 2012–13 Review provided a description of what RNNDI measures205 and as the Panel has stated, it remains a better measure of the incomes available to Australians than GDP.206 It is interesting to note, however, that over the past 10 years, and despite the volatility of RNNDI, real GDP and RNNDI have each grown by 30 per cent.

Chart 4.3: RNNDI, real GDP and the terms of trade, index (Dec-06 = 100)

Note: RNNDI takes into account the impact of changes in prices of exports relative to imports, the real impact of income flows between Australia and the rest of the world, and the consumption of fixed capital. Income flows between Australia and the rest of the world are fairly smooth over time and changes tend to have little impact on short-term movements in RNNDI. The consumption of fixed capital tends to stall growth in RNNDI but, for the most part, the impact on short-term movement is small. See ABS, Real net national disposable income—a new national accounts measure, Feature article in ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2001, Catalogue No. 5206.0.

Source: Statistical report, Chart 1.3; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

[220] In the February 2017 Statement on Monetary Policy, the RBA noted that the ‘transition from the mining investment boom is still in progress, but is now well advanced; the drag on [GDP] growth from falling mining investment should wane’ and that recent increases in commodity prices are unlikely to lead to much new investment over the coming years. 207 Chart 4.4 shows the share of mining and non-mining investment in GDP over the 12 years to 2015–16. It shows that the very high levels of investment in mining between 2011 and 2015 were largely offset by falls in non-mining investment. In the most recent years, mining investment has continued to fall. Non-mining investment has risen, but not yet to the point where it has fully offset the fall in mining investment.

Chart 4.4: Mining and non-mining market sector investment share of GDP

Source: Statistical report, Chart 1.6; ABS, Australian System of National Accounts, 2015–16, Catalogue No. 5204.0.

[221] The RBA noted that economic conditions have varied across states, with stronger growth in New South Wales and Victoria and weakest growth in Western Australia. 208 ACCI argued that non-mining investment has remained relatively subdued209 with the transition to broader-based growth at the end of the mining boom resulting in a two-speed economy shown by stronger performances in New South Wales and Victoria and weaker performance elsewhere.210 CCIWA also commented that signs of economic recovery are not being experienced across all states and territories.211

[222] Economic growth across different industries is represented by gross value added (GVA) which provides information on the contributions made to output at a sectoral level (Chart 4.5). Over the decade to the December quarter 2016, annual average growth in GVA was highest in Mining, Health care and social assistance, Agriculture, forestry and fishing, and Rental, hiring and real estate services, and fell in Manufacturing. GVA growth over the year to the December quarter 2016 was 2.5 per cent across all industries, however, it varied from 23.7 per cent in Agriculture, forestry and fishing to –5.7 per cent in Construction.

[223] Among award-reliant industries, annual average growth in GVA over the decade was highest in Retail trade and fell in Administrative and support services. Although the fall in Administrative and support services was greater over the year to the December quarter 2016, GVA growth in Accommodation and food services was higher over the year to the December quarter 2016 than over the decade.

Chart 4.5: GVA by industry, December quarter 2006 and December quarter 2016

Source: Statistical report, Chart 1.4; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

Productivity and unit labour costs

[224] Both productivity and unit labour costs are relevant considerations in the Review. There are complexities in measuring both concepts. Ai Group drew attention to the following observation of the Productivity Commission:

‘Despite the best efforts of statisticians and economists, the measurement and interpretation of productivity remains a challenge’. 212

[225] Productivity is defined as the quantity of GDP produced per unit of labour and/or capital used. Productivity is a real, or volume, measure. Labour productivity is total GDP divided by total hours worked for all workers (managerial and non-managerial employees, the self-employed and employers). Because of the difficulty of measuring output in the public sector, productivity is also measured just for the market sector, as GVA per hour worked.

[226] Unit labour costs ‘represent a link between productivity and the cost of labour in producing output’ 213 and are measured by the average cost of labour per unit of output. Real unit labour costs adjust this for general inflation in producer prices (as measured by the GDP deflator). If real unit labour costs remain constant, then the labour share of output will remain constant and the real cost of a unit of labour will rise at the same rate as labour productivity. In this scenario, there will be no added labour cost pressures across the economy as a whole.

[227] As no evidence to the contrary was provided in this Review, the Panel continues to support a conclusion that increases in minimum wages are more likely to stimulate productivity measures by some employers directly affected by minimum wage increases, rather than inhibit productivity. The Victorian Government expressed a different but related view when it submitted that the Act ‘provides ample scope for employers to negotiate flexible working arrangements with their employees that can in turn, support productivity improvements. In turn, therefore, productivity impacts cannot be said to provide a strong rationale against increasing minimum wages in a balanced way.’ 214

Productivity

[228] The Panel has previously noted that productivity growth is best measured over the business cycle. 215 One reason is that the level of excess capacity in the economy affects the measured productivity of both labour and capital. However, the length of the business cycle does not align with the statutory task of an Review, and for this reason we also pay more attention to longer term trends and treat recent changes with some caution. Labour productivity growth across the whole economy (1.9 per cent) and for the market sector (2.4 per cent) was higher over the year to the December quarter 2016 than the previous year (Table 4.1). The low productivity growth of 2015 now looks to have been an exception, in the context of the past 5 years or so. Since the December quarter 2011, GDP per hour worked has risen by 8.4 per cent, and GVA per hour worked in the market sector has risen by 10.3 per cent. Growth in hours worked, which was low over the year to the December quarter 2016 and higher over the previous year, appears to be influencing the measures of labour productivity.

Table 4.1: Productivity growth and its components, percentage change over the year

Note: Data from the Australian National Accounts are seasonally adjusted. Data from the Labour Force are in trend terms. n/a = not available.

Source: Statistical report, Table 2.2; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0; ABS, Labour Force, Australia, Apr 2017, Catalogue No. 6202.0.

[229] Productivity growth over a longer period shows that GVA per hour worked for the market sector has grown faster than GDP per hour worked since 2010 and both have risen more than GDP per capita over the same period (Chart 4.6). Both GVA per hour worked for the market sector and GDP per hour worked have increased at a higher rate over the 5 years to the December quarter 2016 than the previous 5 years.

Chart 4.6: Measures of productivity growth, index (Dec-06 = 100)

Note: Labour productivity is measured as real GDP per hour worked. Gross value added measures the value of output at basic prices minus the value of intermediate consumption at purchasers’ prices. The market sector includes all industries except for Public administration and safety, Education and training and Health care and social assistance.

Source: Statistical report, Chart 2.1; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

[230] Chart 4.7 presents labour productivity growth over 3 productivity cycles between 1998–99 and 2015–16. The ABS identify productivity growth cycles by examining changes in productivity over an extended period of time and comment that analysis of averages of productivity statistics between growth cycle peaks allows better understanding of the drivers of productivity growth. 216

[231] As measured by the ABS:

‘Labour productivity growth reflects growth in two areas. The first is from an increasing capital-labour ratio (capital deepening). That is, more capital per unit of labour input. The second is from increasing multifactor productivity. For example, the introduction of new disembodied technologies, organisational improvements, economies of scale, and the implementation of research and development.’ 217

[232] Estimates of MFP provide a measure of changes in the efficiency of production. MFP represents that part of the change in production that cannot be explained by changes in the measured inputs—in practice, measured as labour and capital.

[233] While the current business cycle (2007–08 to 2015–16) is incomplete, it shows that the growth in labour productivity has been higher than the preceding cycle but lower than the previous cycle before that. Chart 4.7 also shows that in the current cycle, capital deepening accounted for a significant proportion of growth in labour productivity.

Chart 4.7: Annualised labour productivity growth over productivity cycles, market sector, 1998–99 to 2015–16

Note: MFP is measured as output per combined unit of labour and capital. Capital deepening is the component of labour productivity growth which is due to the increase in the amount of capital that each unit of labour has to work with. Labour productivity is represented by the numbers above the columns, and is the sum of MFP and capital deepening. Data are expressed in original terms. Market sector excludes Public administration and safety; Education and training; Health care and social assistance and Ownership of dwellings.

Source: Statistical report, Chart 2.3; ABS, Australian System of National Accounts, 2015–16, Catalogue No. 5204.0.

[234] We note here the large effects that the exceptional levels of investment in the resources industry have had on the usual interpretation of measures of productivity change. Much of the capital deepening that occurred in the last two cycles was a result of mining investment and did not increase the productivity of the 98 per cent or so of the labour force that is not employed in the mining sector. In effect, there have been 2 separate economies, and we have to be careful in adding them together as we seek to understand the non-mining economy and what it means for the adjustment of the NMW and award rates. The decline and then low growth in MFP that we see in the chart is in significant part caused by the very large investment in mining.

[235] ACCI observes that ‘since 2004 [MFP] has stalled in Australia and around the developed world.’ 218 The discussion by the Productivity Commission that ACCI cites for this view goes on to say:

‘The peculiarities of production in the mining sector partly affect this outcome. It takes time to construct mining facilities before production can begin. Accordingly, during any significant expansion of mining—as occurred in the 2000s—capital rises rapidly without an accompanying increase in output, reducing measured productivity… [however] the “tos and fros” of mining productivity have not been important enough to fully explain the downward shift in economywide MFP growth rates.’ 219

[236] For the reason given by the Productivity Commission, we do not accept that the causes of the decline in MFP growth in Australia are the same as for the rest of the developed world: most other countries did not experience an equivalent of Australia’s mining construction boom. We still need to assess the impact of the resources sector, and its impact on the economy wide measures that are relevant to making a decision about the NMW and award wages. While we are unable to do this precisely, it is clear that the decline and then slow growth in aggregate MFP, and the high rate of capital deepening seen since 2003–04 are mostly not attributable to the non-mining parts of the economy. Investment in the non-mining part of the economy has moved in the opposite direction to that in the mining sector over the past decade (see Chart 4.4 above). The mining sector is highly paid and has few award-reliant workers (see Table 4.7). For these two reasons, the impact of the mining sector on MFP and capital deepening should be discounted as we consider the growth in overall economic efficiency and labour productivity.

[237] Ai Group focuses on changes in MFP in its consideration of the capacity of the economy to pay higher wages. It notes that MFP has ‘been improving by around 1% p.a. since 2011. On a quality-adjusted hours-worked basis, MFP improved by 0.6% in 2015–16 ... This is an improvement from the previous decade, but is still exceedingly weak.’ 220 It also states that ‘[t]his failure to improve MFP is (sic) a sustainable manner and over a longer time frame hampers these industries’ ability to raise real income for business (real profits) and workers (real wages) alike.’221 This view is at odds with the position of the Productivity Commission, which states, ‘[b]roadly speaking, if output per hour rises, then workers can expect wages to rise.’222 We share the view of the Productivity Commission, that workers can expect wages to rise if labour productivity (and not just MFP) rises.

[238] ACCI submitted that ‘Australia’s current productivity growth still falls well short of the sustained, stronger productivity growth of previous decades.’ 223 To support its position, in response to questions from the Panel,224 it provided Chart 4.8, taken from a report by the Productivity Commission.

Chart 4.8: Market sector labour productivity decomposition, percentage points contribution, average per annum

Note: Excludes ANZSIC divisions Rental, hiring and real estate services, Professional, scientific and technical services, Administrative and support services, Public administration and safety, Education and training, Health care and social assistance and Other services. The 2007–08 to 2014–15 growth cycle is incomplete.

Source: ACCI additional material, 19 May 2017 at para. 5; Productivity Commission (2016), Increasing Australia’s future prosperity, Discussion Paper, 5 year productivity review, November, Figure 3; ABS, Estimates of Multifactor Productivity, 2014–15, Catalogue No. 5260.0.55.002.

[239] We accept that much of the growth in labour productivity since 2003–04 has been a result of capital deepening, rather than of MFP. But we do not accept that labour productivity growth since 2007–08 is ‘well short’ of that in earlier decades. The 2.3 per cent per annum growth in labour productivity in the period 2007–08 to 2014–15 exceeds, or is virtually the same as, growth in all prior periods except 1993–94 to 1998–99.

Unit labour costs

[240] Nominal unit labour costs have remained quite stable since 2011 and real unit labour costs were also relatively stable over that period before falling by 5 per cent over the year to the December quarter 2016 (Chart 4.9). Citing recent research from the RBA, the Australian Government noted that ‘relatively stable real unit labour costs in recent years has provided some support to employment growth and prevented the unemployment rate from rising to “the extent that might otherwise have been expected”’. 225

Chart 4.9: Unit labour costs, nominal and real, index (Dec-06 = 100)

Source: Statistical report, Chart 5.3; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

[241] Since 2013 there has been almost no growth in nominal unit labour costs, which is most unusual. It implies that labour costs in nominal terms have risen at about the same rate as labour productivity, in part because of the very low growth in wages and the GDP deflator (i.e., inflation in producer prices). Over the past year, real unit labour costs have fallen, as the gains from increased labour productivity have gone proportionately more to capital (in the form of profits) than to labour (in the form of wages). In large part, this is due to the rise in the terms of trade, which has increased revenue for a given level of volume exported by the mining sector. Most of this increase in revenue goes to profits, with the RBA stating that ‘[t]he higher commodity price levels are boosting the profits of resource firms’, much of which goes to foreign shareholders. 226 An example of this trend is noted by the RBA in its Statement on Monetary Policy of May 2017, which observed that:

‘LNG [liquefied natural gas] production is very capital intensive and requires relatively few employees, a sizeable portion of LNG profits will flow to foreign investors and tax revenue will be constrained by deductions (such as depreciation)’. 227

[242] The RBA also shows that the growth in nominal unit labour costs has been lower than for our major trading partners, as shown in Chart 4.10, and concludes that:

‘These differences in the growth rates of Australia’s unit labour costs versus those of its trading partners have led to a more marked improvement in Australia’s labour market competitiveness than in the competitiveness of the prices of its goods and services. Australia’s real effective exchange rate based on unit labour costs has depreciated by around 25 per cent since March 2013.’ 228

Chart 4.10: Nominal unit labour costs, index (March 2013 = 100)

Source: RBA, Statement on Monetary Policy, May 2017, p. 26, Graph A4.

[243] We draw several conclusions from this discussion. While there have been some modest fluctuations, the gains in labour productivity over the past 8 years have matched those of all but one of the periods since 1973–74. These gains have by and large been reflected in wages (or, more precisely, in costs of employment). The exception is 2016, where the boost to national income from the improved terms of trade has gone mostly to profits, especially (but not entirely) in the resources sector. The terms of trade have been volatile in the past decade and the RBA is of the view that the current high levels are unlikely to be sustained. Nor do the benefits from them flow in any direct way to labour. It is prudent at this stage to place little weight in our deliberations on the most recent rise in the profit share of total factor income, and associated fall in real unit labour costs.

[244] We note that in earlier years the NMW and award rates were intentionally not raised commensurately with the growth in national income that flowed from the very high terms of trade. The Panel judged at the time that growth in national income from this source was too volatile to provide a sound foundation for growth in enforceable minimum wages. 229 We are still of that opinion.

Business competitiveness and viability

[245] On an annual basis, profits growth was particularly strong over the year to the December quarter 2016 compared with the preceding years and above the 5-year and 10-year averages for both total industries and non-mining industries (Table 4.2). Profits in the non-mining part of the economy grew by 2.0 per cent over the year to the December quarter 2015 and 9.6 per cent over the year to the December quarter 2016, and have averaged annual growth of 3.4 per cent over the past 5 years. This compares with growth of 4.2 per cent over the past 10 years and suggests that the 9.6 per cent growth in the most recent year is particularly healthy. Over the past 5 years, profitability in the non-mining parts of the economy has exceeded that of all industries (i.e., including mining), albeit by a small margin.

Table 4.2: Company gross operating profits, total and non-mining industries, growth rates

Note: *Annualised growth rates.

Source: Statistical report, Table 3.2; ABS, Business Indicators, Australia, Dec 2016, Catalogue No. 5676.0.

[246] As shown in Table 4.8, the percentage change in gross operating profits (over the year to the December quarter 2016) for the most award-reliant industries varied widely. The Accommodation and food services industry had a 14.1 per cent decline in profits, Retail trade also suffered a decline (3.7 per cent) whilst gross operating profits increased in the Administrative and support services industry by 3.7 per cent and in the Other services industry by 81.2 per cent.

[247] The profits share of total factor income fell over the 5 years to the September quarter 2016 to 24.4 per cent before increasing to 26.5 per cent in the December quarter 2016 (Chart 4.11). While the wages share had been relatively stable for most of the 5 years to the September quarter 2016, it fell to 52.3 per cent in the December quarter 2016.

Chart 4.11: Profits and wages shares of total factor income

Source: Statistical report, Chart 3.1; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0.

[248] Business viability may be assessed using measures published by the ABS which are often referred to in submissions. 230 Business entry, exit and net entry rates between 2005–06 and 2015–16 are shown in Chart 4.12.

[249] The chart shows that, since 2012–13, the business entry rate has increased, while the business exit rate has steadily declined. This is reflected in the positive net entry rate, which shows that the number of businesses in the economy has grown each year since 2013–14.

Chart 4.12: Business entry, exit and net entry rates, 2005–06 and 2015–16

Note: Entry rates are business entries in the financial year as a proportion of total businesses operating at the start of the financial year. Exit rates are total business exits in the financial year as a proportion of total businesses operating at the start of the financial year. Net entry rates are the difference between the entry and exit rates, and represent the percentage growth in the number of businesses over the respective financial year.

Source: Statistical report, Chart 3.5; ABS, Counts of Australian Businesses, Including Entries and Exits, various, Catalogue No. 8165.0.

[250] Business entry and exit rates and the proportion of businesses by industry as at June 2016 are presented in Table 4.3. The entry rate over the year to June 2016 was higher than the exit rate and this was also the case across most industries, including 3 of the 4 most award-reliant industries being Accommodation and food services, Administrative and support services and Other services, whereas in Retail trade business exits were higher than entries. Entry rates were highest in Accommodation and food services, however, this industry also had the second highest exit rate.

Table 4.3: Business entry and exit rates by industry

Note: Entry rates are business entries in the financial year as a proportion of total businesses operating at the start of the financial year. Exit rates are total business exits in the financial year as a proportion of total businesses operating at the start of the financial year. Only data for those businesses that were able to be classified to an industry division are presented. Of all businesses that were actively trading as at June 2013 and June 2016, 2.0 per cent and 1.4 per cent, respectively, were not classified to an industry.

Source: Statistical report, Table 3.4; ABS, Counts of Australian Businesses, Including Entries and Exits, June 2012 to June 2016, Catalogue No. 8165.0.

[251] Survival rates measure the proportion of businesses that were actively trading in an initial period and continued to be trading in a later period.

[252] Chart 4.13 shows business survival rates over 4-yearly intervals. Over the period, business survival rates increased, with survival rates highest among businesses that were operating in June 2009 and still operating in June 2013. Since then, survival rates declined slightly, though they remain near their highest levels over this period.

Chart 4.13: Business survival rates

Note: A surviving business is defined as a business which was actively trading in the first period and continued to be trading in the second period.

Source: Statistical report, Chart 3.6; ABS, Counts of Australian Businesses, Including Entries and Exits, various, Catalogue No. 8165.0.

[253] All of the 4 most award-reliant industries had survival rates below the all industries average for the period June 2012 to June 2016. 231 This reflects the nature of the industries and has been the case for many years. As Table 4.3 shows, for 3 of the 4 most award-reliant industries, (the exception is Retail trade), entry rates of new businesses exceeded exit rates in 2016.

[254] Another measure of business viability is business bankruptcy rates. Chart 4.14 shows the business bankruptcy rates between 2005–06 and 2015–16. While business bankruptcy rates have risen slightly in 2015–16 to 0.36 per cent, they remain near their lowest levels over the last decade.

Chart 4.14: Business bankruptcy rates

Note: The bankruptcy rate is defined as the number of business-related bankruptcies divided by the number of owner managers of an unincorporated enterprise in the economy. The business bankruptcy rate is adopted from Bickerdyke I, Lattimore R, and Madge A (2000), Business Failure and Change: An Australian Perspective, Productivity Commission Staff Research Paper, Ausinfo, Canberra. Data are expressed in original terms.

Source: Statistical report, Chart 3.4; ABS, Labour Force, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003; Australian Financial Security Authority, Provisional business and non-business personal insolvency time series, Bankrupts entering a business related bankruptcy (under Parts IV and XI of the Bankruptcy Act 1966), September quarter 2016, https://www.afsa.gov.au/statistics/time-series-0.

[255] Business bankruptcies are a small component of business exits. In 2015–16, there were 4323 business bankruptcies and 260 126 business exits. 232 Other reasons for business exits include sale of the business, takeover/mergers, business closure unrelated to bankruptcy (e.g., retirement, sickness or death), and company liquidations.233

[256] These measures suggest that there has been a modest improvement in the viability of businesses in recent years, as indicated by the growth in the number of businesses and the low proportion of business bankruptcies.

Profit margins

[257] Profit margins measure the proportion of operating profits before tax from sales and service income received.

[258] Differences between profit margins across industries can reflect different features of the industry, including the level of capital intensity. Table 4.4 shows the profit margins for both small (including non-employing businesses) 234 and all businesses by industry in 2015–16 (the most recent data), as well as the annual average of the 5 years to 2015–16. The table shows that profit margins grew quite strongly for all businesses over the past 5 years and over 2015–16. They grew more rapidly for small businesses than across all businesses in 2015–16 and for the annual average over the 5 years to 2015–16. These data may be affected by including non-employing businesses as part of small businesses, which may operate differently to employing businesses. Unfortunately, these businesses cannot be removed from the data. Nonetheless, the data do not support the contention by ACCI that small businesses have lower profit margins and therefore lower capacity to absorb increased labour costs.235 The Sensis Business Index for the December quarter 2016 reports that the main barrier to small and medium-sized firms taking on more workers was limited sales. Only 9 per cent cited costs of employing as the main reason.236

Table 4.4: Profit margins, annual growth rates, small and all businesses, 2015–16

Note: Profit margins are operating profits before tax divided by sales and service income. Small businesses employ less than 20 people (include non-employing businesses). Total selected industries excludes Financial and insurance services.

Source: Statistical report, Table 3.3; ABS, Australian Industry, 2015–16, Catalogue No. 8155.0.

Surveys of Business Performance

[259] Once again the Panel was referred to a number of surveys of business. The Panel has commented in previous decisions about the usefulness or otherwise of these surveys.

[260] As was noted in the 2015–16 Review decision, the Australian Government and the RBA had assessed ‘that information from the main business surveys (by ACCI, NAB, and Sensis) have proved to be quite reliable predictors of output and employment growth’. 237

[261] Ai Group again submitted their composite Ai Group PMI, PSI and PCI index and NAB business conditions chart reproduced below (Chart 4.15).

Chart 4.15: Composite Ai Group PMI, PSI & PCI index and NAB business conditions

Source: Ai Group response to questions for consultations, 12 May 2017 at p. 7.

[262] On the basis of this chart, Ai Group submitted that ‘business conditions dropped in February 2017 after a surge in January, but remained at positive (and above average) levels’. 238

[263] It can be seen from Chart 4.15 that business conditions are at their most positive since the GFC.

Small business

[264] There is no specific reference to small and medium-sized businesses in the minimum wages and modern awards objectives. However, the general object of the Act is directed to providing a balanced framework for cooperative and productive workplace relations, which promote national economic prosperity and social inclusion for all Australians by, amongst other things, acknowledging the special circumstances of small and medium-sized businesses. 239

[265] The Australian Government highlighted ‘the important role played by small businesses in the Australian economy, through their contribution to economic growth and employment’. 240

[266] The Australian Government provided extensive information about small businesses and their particular circumstances in section 5.4 of its submission.

● While 97 per cent of all businesses are small (i.e., employ 0–19 employees), they account for a smaller percentage of employees (45 per cent) and of value added (36 per cent). Thirty eight per cent of these small businesses were employing small businesses. They are particularly prevalent in agriculture, construction and services. 241
● As at 30 June 2015, small businesses employed around 4.8 million Australians or 45 per cent of non-financial private sector employment. 242
● ‘Small businesses contribute to a greater proportion of employment compared to output in almost every industry which suggests that small businesses may be more labour intensive … than large businesses within the same industry.’ 243
● Small businesses are more award reliant than large businesses but similar in this regard to medium businesses. Small businesses alone account for around 34 per cent of total employees on award classification wages and around 35 per cent of employees in a small business are paid award classification wages—this compares to 33 per cent for businesses with 20–49 employees and 17 per cent for larger businesses (with 100–999 employees). 244

[267] The Australian Government submitted that business conditions for small business have shown a steady improvement with both the NAB and Sensis surveys showing that business conditions are above long-term average levels. 245 Over the year and 5 years to 2015–16, small businesses had on average higher rates of growth in their profit margins than did all businesses (17.2 per cent compared with 11.9 per cent for the 5-year period) (Table 4.4).

[268] The Australian Government (on the basis of the NAB and Sensis surveys) concluded that:

● ‘the proportion of small businesses that experienced an improvement in business conditions over the December 2016 quarter outweighed the proportion of those that experienced deterioration’; 246
● at an industry level, the latest NAB survey results suggest conditions are positive across all industries except manufacturing; 247
● ‘consistent with the NAB SME survey the Sensis results suggest that small business conditions continue to improve’; 248
● the NAB surveys show that small businesses are now reporting better conditions than all businesses in general; 249
● the NAB business surveys indicate that small businesses remain cautious in their employment decisions with more small businesses reducing the size of their workforce compared to those that have reported an increase. However, encouragingly, the employment indicator continues to improve; 250 and
● the ‘Sensis December Quarter 2016 Business Index which includes small and medium sized businesses shows encouraging signs of improvement in the labour market, with more firms for the first time since March quarter 2015 increasing the size of their workforce compared to those reducing the size of their workforce’. 251

[269] The ACTU used unpublished data from the EEH to show that there has been some shift in the concentration of award-only workers from small to larger businesses between 2014 and 2016. The proportion in small businesses fell from 37.9 per cent to 33.4 per cent while the proportion working in businesses with over 50 employees rose from 42.4 per cent to 50.0 per cent over the 2 years. 252 The ACTU contends that this shift reduces the extent to which small businesses are disproportionately sensitive to changes in award rates of pay. This perspective gains some support from the fact, cited by the Australian Government,253 that labour costs are a slightly smaller share of total expenses for small employing businesses than for larger ones, at 16 per cent.

[270] The Australian Government claims that it is appropriate to include non-employing small businesses in our considerations, ‘as labour costs have a direct and immediate bearing on the propensity of non-employing small businesses to take on workers.’ 254 While we accept that labour costs will be a factor that sole operators take into account if they are considering employing a worker, it is also the case that they will not otherwise need to accommodate rising labour costs, unlike their employing counterparts.

[271] The Panel recognises that small businesses do have distinguishing features, some of which make it harder for them to accommodate rising costs from any source. But we note that the situation of small businesses is more robust in 2017 than it has been for some time, that the extent of award reliance has diminished, and that their growth in profit margins has been substantially higher than for larger businesses.

Inflation and wages

[272] Inflation and wages have continued to grow at unusually low rates over the past year. The historically low growth in wages was acknowledged in the 2017 Budget Speech, where the Australian Treasurer said ‘it’s been a fair while since most hardworking Australians have had a decent pay rise’. 255

[273] These measures are discussed in more detail in the following sections.

Inflation

[274] We look at 3 different measures of inflation in consumer prices and each has been relatively low over the past year. The different measures can diverge, with the Living Cost Index (LCI) being more volatile. However, over the year to the March quarter 2017, they have moved mostly in tandem, with growth below an annual rate of 2.0 per cent. Annual growth in the CPI was below 2.0 per cent between the December quarter 2014 and the December quarter 2016 before increasing to 2.1 per cent over the year to the March quarter 2017 (Chart 4.16). Annual growth in underlying inflation, the average of the trimmed mean and weighted median measures, has been below 2.0 per cent since the March quarter 2016. The LCI for employee households increased by 1.5 per cent over the year to the March quarter 2017.

[275] Until the March quarter 2017, both the headline and underlying measures of inflation have been below the RBA medium-term target of 2–3 per cent. The Australian Government noted that the subdued inflationary environment is occurring globally. 256

[276] The parties differed in their interpretation of the significance of low inflation for wage setting. ACCI submitted that low inflation suggests that spending is subdued, consumer confidence is lagging and competitive pressure is impacting prices. 257 ABI and NSWBC concurred that it suggests ‘limited opportunity for firms to accommodate increasing labour costs’.258 The ACTU, in contrast, submitted that it provides an opportunity to provide a real increase to the NMW.259

Chart 4.16: Measures of inflation—CPI, underlying inflation and LCI for employee households

Note: CPI measures quarterly changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). The LCI for employee households measures the change in the price of a ‘basket’ of goods and services which is based on the expenditure of employee households whose principal source of income comes from wages and/or salaries. CPI and LCI data are expressed in original terms.

Underlying inflation is calculated as the average of the trimmed mean and weighted median. These measures are calculated by the ABS following the methodology adopted by the RBA. The trimmed mean is calculated by ordering the CPI expenditure class components by their price change in the quarter and taking the expenditure weighted average of the middle 70 per cent of these price changes. The weighted median is the price change of the component in the middle of this ordering.

Source: Statistical report, Chart 4.1; ABS, Consumer Price Index, Australia, Mar 2017, Catalogue No. 6401.0; ABS, Selected Living Cost Indexes, Australia, Mar 2017, Catalogue No. 6467.0.

[277] While none of the inflation measures that we report provides a perfect measure of the changes in the cost of living for award-reliant workers, or for all workers, they do provide essential information from which to judge whether real wages—their ability to buy a basket of goods and services—have risen in recent years. The subdued inflation means that there is little risk to the macroeconomic inflationary environment from our decision.

[278] The prices that producers receive for domestically produced products (producer prices, as measured by the GDP deflator) have followed a different pattern over the past 10 years. They rose by 20 per cent between 2006 and 2011, and then remained almost unchanged until the December quarter 2015. They have risen by 3.6 per cent over the year to the December quarter 2016. 260 Much of this unusual pattern is explained by the large rise, then fall, in the terms of trade, including the further rise we have seen in 2016.

[279] In response to a question on notice, the Australian Government advised that the GDP deflator has risen more strongly than wages over the past year in part because ‘the GDP deflator is affected by export prices, which have risen by around 10 per cent through the year to the December quarter 2016 due to increases in commodity prices’. 261

Wages

[280] Growth in all measures of wages has remained low. In the December quarter 2016, the fastest growth has been for federal enterprise agreements, as shown in Chart 4.17 below. The average annualised wage increase (AAWI) for federal enterprise agreements rose by 3.1 per cent while AWOTE rose by 2.2 per cent over the year. Both measures slightly exceeded measures of inflation for the same period. The WPI, which tracks changes in pay for the job by holding constant the employment structure, grew by only 1.9 per cent over the year to the March quarter 2017. 262 Growth in the NMW and award rates in 2016, at 2.4 per cent, exceeded inflation and growth in both the WPI and AWOTE. This reflects the Panel’s view in the 2015–16 Review decision, that ‘[t]he prevailing economic circumstances provide an opportunity to improve the relative living standards of the low paid’.263 Over the longer term, as shown in the chart, AWOTE is the measure that has grown most strongly, followed by AAWI. An important reason for this is the change in the structure of employment, with growth in the higher paying managerial and professional jobs exceeding that of many of the lower paid and trade jobs.

[281] Several parties (ABI and NSWBC and ARA 264) argued that the WPI is the ‘better’ or ‘most appropriate’ measure. The RBA is also of this view, although it supplements information about the WPI with AWOTE, AAWI and average labour costs from the national accounts.265 As can be seen from Chart 4.17 below, over the 10-year period, growth in the NMW and the C10 rate has been more than 5 percentage points lower than growth in the WPI, and 10 percentage points lower than growth in AAWI.

[282] ARA and ACCI advocated that WPI in the private sector is the most appropriate wage measure ‘because the capacity of the public sector to grant wage increases is divorced from the capacity of private firms’. 266 ACCI reports that growth in the private sector WPI over the year to the December quarter 2016 was at a record low of 1.8 per cent, even lower than the 2.0 per cent recorded in 2015.267

[283] We accept the point that for private businesses, the private sector WPI is of more direct relevance than the WPI for the whole economy. In practice, however, there is very little difference between the two series. As shown in Table 5.2 of the Statistical report, the private sector WPI has grown by 36.0 per cent between the December quarter 2006 and the March quarter 2017 while the all sectors WPI has grown by 36.7 per cent. 268

Chart 4.17: Measures of nominal wages growth, quarterly and cumulative percentage change, index (Dec-06 = 100

Note: The WPI is an index for total hourly rates of pay excluding bonuses in both private and public sectors. It is unaffected by changes in the quality or quantity of work performed. AWOTE is calculated by dividing estimates of weekly ordinary time earnings by estimates of the number of employees. Ordinary time earnings refers to earnings attributable to award, standard or agreed hours of work. It is calculated before taxation and other deductions such as superannuation. It also excludes payments which are not related to the reference period such as overtime, leave loading and redundancy payments. AWOTE estimates refer to full-time adult employees. AAWI measures the average percentage increase in the base rates of pay across registered agreements for the year. It does not take into account payments such as allowances, bonuses and increases linked to productivity. The AAWI index is calculated by first deriving a quarterly rate from the AAWI per employee for agreements approved in the quarter for all sectors. The C14 and the C10 are minimum award rates set under the Manufacturing Award and the former Metal, Engineering and Associated Industries Award 1998.

AWOTE data are published half-yearly for May and November; hence a quarterly series has been derived. AWOTE data are expressed in original terms.

Source: Statistical report, Chart 5.1; ABS, Average Weekly Earnings, Australia, Nov 2016, Catalogue No. 6302.0; ABS, Wage Price Index, Australia, Mar 2017, Catalogue No. 6345.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2016, <http://employment.gov.au/trends-federal-enterprise-bargaining>; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award (from 1 January 2010).

[284] Submissions discussed the possible reasons for low wage growth. The Australian Government and ACCI submitted that the low wage growth reflects the economy transitioning from the investment to the production phase of the mining boom. 269

[285] Ai Group made reference to a recent article on this topic by Bishop and Cassidy (2017) of the RBA. 270 Together with findings from previous RBA research,271 this article discussed the reasons for low nominal wage growth, including:

● spare capacity in the labour market;
● concerns of future employment prospects leading employees to be more willing to accept lower wage rises;
● low inflation expectations;
● lower prices for producers that have resulted from the large fall in the terms of trade; and
● the need for the real exchange rate to fall to adjust to the fall in the terms of trade, as wage growth had exceeded that of our international competitors.

[286] The article also considered whether low wage growth may be due to a decline in the bargaining power of workers. However, the authors stated that this is difficult to observe and the evidence is limited. 272

[287] AFEI submitted that the ‘disappearance of the elevated rate of wage increases’ and shift in employment away from the mining sector have been a major factor in the slowdown of wages. 273 Their view is supported by Bishop and Cassidy, who say that there has been a ‘steady decline in the frequency of wage changes since the early 2000s’ and that the fall in the average size of wage changes is largely a result of a reduction in the number of increases that exceed 4 per cent. Much, but not all, of the fall in large pay increases has been in the mining and related sectors.274

[288] AFEI submits that ‘it would appear that the bulk of recent wage growth has been primarily driven by the minimum wage review Decisions, not by the demand and supply conditions faced by employers’. 275 The RBA article provides some support for this view, but the principle mechanism that the authors identify is through ‘anchoring of wage outcomes to CPI’.276 The article goes on to express the view that ‘[d]ecisions by the Fair Work Commission, which sets awards and minimum wage outcomes, are heavily influenced by the CPI’.277 In response to the AFEI point, we draw attention to the fact that while the Panel has taken the CPI (and other measures) into account as part of our assessment of cost increases for employees, the basis for, and level of, the adjustments has not been limited to the CPI.

[289] We believe that the reasons given by the RBA article for the low growth in wages are salient, but share the view that it is still somewhat puzzling. There has been spare capacity in the labour market since the GFC, and the RBA estimates that this has recently declined a little, while the growth in the WPI continues to fall to record lows. The RBA article notes that other advanced economies are having a similar experience of low wage growth. Possible reasons that they consider are the growing job insecurity from sources such as ‘technological progress, an increase in contract work, and increased competitive pressure from growing internationalisation of services trade’. 278 But Bishop and Cassidy observe that while measures of feelings of job insecurity are low this is ‘not measuring anything separate to traditional labour market indicators such as unemployment’.279

[290] We accept that the modest increases to the NMW and minimum award rates do reflect, in part, low inflation, and play some part in low growth of wages more generally.

Labour market

[291] Trends relating to the labour market encompass employment and hours worked, including by industry, as well as data on workforce participation indicators such as underemployment, long-term unemployment, participation and youth employment. As in the Statistical report, trend data is used in this section unless otherwise indicated.

Labour market developments

[292] The number of persons employed and monthly hours worked from December 2006 to April 2017 are shown in Chart 4.18. Annual employment growth fell below 1.0 per cent towards the end of 2016 and in early 2017 while annual growth in monthly hours worked fell below 0.5 per cent over the same period. Both growth rates picked up slightly in April 2017.

Chart 4.18: Persons employed and monthly hours worked in all jobs

Source: Statistical report, Chart 6.1; ABS, Labour Force, Australia, Apr 2017, Catalogue No. 6202.0.

[293] The growth in total hours worked is a key indicator of the strength of employment, and accommodates changes in both full- and part-time employment. Chart 4.18 suggests that there has been little growth in hours worked over the past year. On closer inspection, this slow total growth in hours worked has been caused, in part, by substantial falls in the average number of hours worked by full-time workers, over the 12 months to April 2017. In the first half of 2016, there was a small fall in average hours worked by part-time workers, but this was reversed after August 2016. 280 We do not know the reasons for the fall in average monthly hours worked by full-time workers. But it is much less concerning as an indicator of a weak labour market than other causes of low employment growth, such as growth in underemployment or low growth in total employment.

[294] Chart 4.19 shows the change in employment by full-time and part-time hours and by gender from April 2016 to April 2017. Total employment increased by 152 100 over the year to April 2017, with 67.6 per cent of the increase attributable to part-time employment, particularly for females. Growth in total female and male employment was similar over the year to April 2017, although female full-time employment declined over the period.

[295] According to the RBA Statement on Monetary Policy in February 2017, the continued increase in part-time employment relative to full-time employment may reflect compositional changes as the economy continues its transition towards the services sector and subdued labour market conditions as a result of cyclical factors or broader structural changes to the economy. 281 The RBA also noted that fewer part-time workers have moved to full-time work than is normally the case, consistent with higher underemployment, while the movement of workers from full-time employment to outside the labour force has picked up, driven by both demographic changes and cyclical factors.282 In Chapter 6 we consider in more detail the interpretation of both underemployment and the significance of the growth in part-time employment.

Chart 4.19: Change in full-time, part-time and total employment by gender, April 2016 to April 2017

Source: Statistical report, Chart 6.7; ABS, Labour Force, Australia, Apr 2017, Catalogue No. 6202.0.

[296] The change in employment and hours worked by industry over the year to the February quarter 2017 is shown in Table 4.5. It shows considerable diversity between industries around the all industries (trend) employment growth of 1.2 per cent and the all industries (original) hours worked growth of –1.0 per cent. The changes range from –9.5 per cent to 10.8 per cent for employment and –20.2 per cent to 8.2 per cent for hours worked. The diversity of employment outcomes is also evident in respect of the award-reliant industries, with the Administrative and support services, Other services and Accommodation and food services industries showing employment and hours growth above the all industries average, whilst employment and hours worked fell in Retail trade.

Table 4.5: Change in employment and hours worked by industry, February 2016 to February 2017

Note: Hours worked data are expressed in original terms. Industries are ranked by employment growth rate.

Source: Statistical report, Table 6.6; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003.

[297] Over the 10 years to the February quarter 2017, employment has grown in all except 4 industries, with 3 of the 4 most award-reliant industries (Administrative and support services, Accommodation and food services and Other services) exhibiting growth in employment above the all industries average, and Retail trade showing growth in employment but below the all industries average (Chart 4.20).

Chart 4.20: Average annual change in employment by industry, February 2007 to February 2017, per cent

Source: Statistical report, Chart 6.5; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003.

[298] Hours worked fell in Retail trade and Administrative and support services over the year to the February quarter 2017. Accommodation and food services had zero growth in hours worked, whilst in Other services, hours worked grew by 4.7 per cent (Table 4.5).

Chart 4.21: Average annual change in hours worked by industry, February 2007 to February 2017, per cent

Note: All data are expressed in original terms.

Source: Statistical report, Chart 6.6; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003.

[299] Chart 4.21 shows the average annual change in hours worked by industry over the 10 years to the February quarter 2017. Three of the 4 most award-reliant industries had increases in hours worked, although Accommodation and food services was slightly below the all industries average. There was a decline in hours worked in Retail trade.

Unemployment

[300] Table 4.6 shows the number and percentage change year-on-year of employed and unemployed persons since December 2006. Over the last year or so, the unemployment rate fell slightly (from 5.8 per cent in December 2015 to 5.7 per cent in December 2016) but has risen to 5.8 per cent in April 2017. The unemployment rate has barely changed since it peaked in December 2014 at 6.2 per cent.

Table 4.6: Employment and unemployment, percentage and percentage point changes over the year

Note: The unemployment rate is the number of unemployed persons expressed as a percentage of the labour force. The rate is calculated for persons aged 15 and over. The percentage change and percentage point (ppt) change are calculated in relation to the corresponding month in the previous year.

Source: Statistical report, Table 6.1; ABS, Labour Force, Australia, Apr 2017, Catalogue No. 6202.0.

Underemployment and underutilisation

[301] The unemployment rate and the underemployment rate have, since the mid-2000s, generally moved similarly, however, over the past 2 years they have diverged somewhat (Chart 4.22). 283

Chart 4.22: Underemployment and unemployment rate, proportion of the labour force

Note: All data are seasonally adjusted.

Source: RBA, Statement on Monetary Policy, February 2017, p. 38, Graph B1; ABS, Labour Force, Australia, Jan 2017, Catalogue No. 6202.0.

[302] The underemployment rate, in seasonally adjusted terms, increased from 8.3 per cent in February 2016 to 8.7 per cent in February 2017. 284 The significance of any change in underemployment is considered more fully in Chapter 6. In brief, we conclude from that discussion that the apparent rise in underemployment as shown in Chart 4.22 overestimates its growth, and that there is not yet a significant divergence between the trends in unemployment and the trends in underemployment. Specifically, the consideration of the extra hours that some part-time workers wish to work does not alter the overall interpretation of the degree of slack in the labour market.

[303] The RBA notes that the upward trend in the underemployment rate since the early 1980s is consistent with the rise in the share of part-time employment. 285 This may also help to explain why underemployment is larger in the most award-reliant industries.

[304] The ACTU speculates that ‘the increase in the unrequited desire to work more hours may be a response to low wage growth if more people find they cannot make ends meet’. 286 The RBA also makes this point, that low wage growth may be a cause of rising underemployment, rather than just a symptom of it. 287

Workforce participation

[305] The employment to population ratio for people of working age (defined here as 20–64 years) controls for changes in the proportion of the adult population that is of working age and summarises the combined effects of changes in their desire and in their ability to find work. Table 6.2 shows how this ratio has changed over the past decade and distinguishes full-time from part-time employment. The employment to population ratio increased by 0.1 percentage points to 75.8 per cent in April 2017, and is down from 75.9 per cent in December 2016. The employment to population ratio is expressed in original terms, therefore, it does not take seasonality into account.

[306] The part-time employment to population ratio has continued its steady increase since December 2011 to 21.7 per cent in April 2017, which is a 0.4 percentage point increase over the year. The full-time employment to population ratio fell by 0.7 percentage points over the year to December 2016 to 55.0 per cent and fell further to 54.1 per cent in April 2017.

[307] The employment to population ratio is considered in more detail in Chapter 6. The key point for a consideration of the state of the labour market is that this important indicator is not signalling a particular weakness in the opportunities for employment. The proportion of the population that is of working age that is employed has hardly changed over the past year. Within this aggregate figure, there have been different outcomes for men and women.

[308] The Australian Government presented analysis which reported that the decline in the participation rate over the 5 years to February 2017 had been ‘driven entirely by the ageing of the population’ and that had there been no change in the age distribution from February 2012, then the participation rate ‘would have been over one percentage point higher’ in February 2017 (Chart 4.23). 288

Chart 4.23: Age-adjusted participation rates, February 2012 to February 2017

Source: Australian Government submission at para. 128, Chart 4.4; ABS, Labour Force, Australia, Detailed—Electronic Delivery, Mar 2017, Catalogue No. 6291.0.55.001.

[309] A number of parties made submissions about the participation rate which was not adjusted for the ageing of the population. We should make it clear, as we have in the past, that we are not assisted by references to the participation rate which is not adjusted for the ageing of the population and we pay little or no attention to such information.

[310] Both the measures of the employment to population ratio and of the participation rate, when the effects of the ageing population are removed, show a reasonably healthy state of the labour market.

[311] As shown by Chart 4.24, the most recent peak in the youth unemployment rate was in late 2014 where it reached 13.9 per cent. It has since fallen and from July 2016 it has been maintained at around 13 per cent. The youth unemployment rate tends to follow the same pattern of movement as the aggregate unemployment rate, although it is generally more sensitive to any demand or supply shocks affecting aggregate unemployment. As has been apparent over the past decade, the youth unemployment rate has been roughly double that of the total unemployment rate. As noted by the ACTU, the relationship between total unemployment and youth unemployment is cyclical in nature and there have not been any structural changes evident in the labour market that would change this relationship. 289 The RBA stated that a fall in full-time youth employment tends to occur when there is spare capacity in the labour market.290

Chart 4.24: Unemployment rates for 15–24 year olds and lone parents

Note: The series for lone parents is expressed in original terms.

Source: Statistical report, Chart 6.8; ABS, Labour Force, Australia, Apr 2017, Catalogue No. 6202.0; ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2017, Catalogue No. 6291.0.55.001.

[312] In assessing the current state of the youth labour market, we were informed by Research Report 2/2017—The youth labour market. Part I of the report, undertaken by Commission staff, examined factors that influence youth labour market outcomes between youth (aged 15–24 years) and the rest of the working age population. 291 Between 2001 and 2015, the trend in the youth labour market was characterised by higher unemployment, a lower participation rate and a greater increase in part-time employment compared with the rest of the working age population.

[313] A variety of factors were found to be associated with labour force status, with some common to both youth and the rest of the working age population. Higher socioeconomic status and living with parents at age 14 was associated with an increase in the probability of employment for both cohorts. Factors which varied among youth and the rest of the working age population included whether they lived in a mining state; certain family types in which they lived and whether they were born outside of Australia in an English-speaking country. An important difference was whether individuals were currently studying, which was found to be associated with a lower probability of unemployment for youth and a higher probability among the rest of the working age population.

[314] Part II, undertaken by researchers at the Melbourne Institute of Applied Economic and Social Research, focused on the youth age group and found that while the patterns in the labour market changed over the period 2001 to 2015, the relationships between full-time student status and labour market outcomes changed by only a small magnitude. 292 The proportion of youth who were full-time students was found to increase substantially over the period, with more young people who were full-time students and not in the labour force in 2015 than in 2001. Whether an individual was a full-time student had a significant impact on which activity they were observed in, being associated with an increase in the probabilities an individual was not in the labour force or employed part-time and a decrease in the probability they were employed full-time.

[315] The analysis found changes over time in the activities individuals engaged in, illustrated by strong growth in full-time employment in the period before the GFC and a decrease in full-time and increase in part-time employment, underemployment or not in the labour force in the period after the GFC. This was particularly felt in the male labour market and among non-students. It was also found that these changes were more likely reflected by changes across the labour market rather than by changes in the characteristics of youth.

[316] Both parts of the report found that studying is associated with a higher probability of employment, particularly part-time employment, for female youth and a higher probability of not being in the labour force for male youth.

Award-reliant industries

[317] Table 4.7 presents award reliance by industry for May 2012, May 2014 and May 2016 from the 2016 EEH. Data on award reliance by industry for May 2016 are only available for non-managerial employees, whereas prior publications presented these data for all employees. This difference is likely to result in a higher proportion of award reliance than otherwise would have been reported as managerial employees are less likely to be award reliant.

[318] As the Panel has considered previously, 293 the most award-reliant industries are those in which the highest proportions of employees are award reliant. This approach provides a better focus for considering the impact of Review decisions on employers in those industries, given that any impact would be expected to be more pronounced within industries where a greater proportion of employees are award reliant.294

[319] The 2016 data show Accommodation and food services; Administrative and support services; Retail trade and Other services as the 4 most award-reliant industries.

[320] In previous years, the Panel has referred to the 5 most award-reliant industries and in submissions to this Review some parties have continued to refer to the 5 most award-reliant industries. The fifth most award-reliant industry is Health care and social assistance but, as can be seen from Table 4.7, there is a substantial gap between the proportion of employees in this industry that are paid exactly the award rate (28.8 per cent) and the fourth most award-reliant industry which is Other services (34.3 per cent). Moreover, there is not much difference between the Health care and social assistance industry (28.8 per cent) and the next 3 highest award-reliant industries of Rental, hiring and real estate services (27.2 per cent), Arts and recreation services (26.2 per cent) and Education and training (26.0 per cent)

Table 4.7: Award reliance by industry, per cent, May 2012, May 2014 and May 2016

Note: *Data on non-managerial employees are presented in 2016 as data for all employees by method of setting pay and industry are not available. Award reliance is the proportion of employees in an industry that are paid exactly the award rate and are not paid more than that rate of pay. n/a = not available

Source: Statistical report, Table 7.1; ABS, Employee Earnings and Hours, Australia, various, Catalogue No. 6306.0.

[321] The proportion of employees that were considered to be award reliant increased between the EEH 2014 and EEH 2016. Part of the reason was explained by the Australian Government, which noted that the changes were affected by recent improvements made to the ABS coding processes:

‘… the ABS have noted that as part of the 2016 EEH cycle, they undertook a review of the application of the Method of Setting Pay conceptual framework. This resulted in the shift of a significant portion of employees in the NSW public sector to the Award only category between EEH 2014 and 2016. Improvements to ABS coding processes for Method of setting pay during this time also resulted in more recoding from Collective Agreements to Awards’. 295

[322] Table 4.8 presents data summarising the main indicators of growth, profitability, wages and employment for the most award-reliant industries compared with all industries. As a number of these indicators can be volatile, the Panel continues to use these data not for the specific magnitudes but to assist with the overall picture. 296

Table 4.8: Economic indicators by award-reliant industries

Note: (a) All industries excludes Agriculture, forestry and fishing; (b) All industries excludes Education and training, Health care and social assistance and some subdivisions of Finance and insurance services.

The award-reliant industries selected are the 4 industries with the highest proportion of employees within the industry who are reliant on award rates of pay according to the EEH 2016. The WPI and actual hours worked data are expressed in original terms. Employment data are expressed in trend terms.

Source: Statistical report, Table 7.2; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0; ABS, Business Indicators, Australia, Dec 2016, Catalogue No. 5676.0; ABS, Employee Earnings and Hours, Australia, May 2016, Catalogue No. 6306.0; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003; ABS, Wage Price Index, Australia, Mar 2017, Catalogue No. 6345.0; Department of Employment, Trends in Federal Enterprise Bargaining, December quarter 2016, <http://employment.gov.au/trends-federal-enterprise-bargaining>.

Other industry and sector circumstances

[323] As has been the case in past Reviews, there were a number of submissions which sought to highlight issues impacting on specific industries. These included submissions from MTA-SA, Business SA, R&CA, NFF, VACC, CCIWA, CCIQ, ARA, HIA, MGA and SAWIA. 297 All state governments (except Tasmania) also provided relevant information about economic conditions in their respective states.

[324] We have dealt with the submissions about apprentices and trainees in Chapter 6. There was only one specific request for the panel to defer an increase in the NMW and award minimum wages. This is dealt with in Chapter 2.

[325] Several parties raised the issue of high and rising electricity (energy) prices. 298 Whilst all employers would face rising energy costs the precise impact on individual employers and industries would be likely to vary greatly. It is also worth noting that employees on the NMW or award minimum wages also have to cope with high and rising energy prices. We do not accept the implicit view that somehow wages are different from other types of business costs, such that if other costs rise, wages should be adjusted to compensate.

[326] We have considered the submissions by employer organisations/industry bodies raising specific circumstances in specific industries. We have also considered the submissions by state governments as to the economic circumstances in those states. All of this information is taken into account in our overall assessment of the state of the national economy.

Retail trade

[327] The Retail industry is the second highest employer and one of the most award reliant. ARA submitted that the industry is facing a ‘difficult trading environment’ with low consumer confidence and low to negative growth. 299 In the light of these features, we examined more closely the circumstances of the Retail industry to evaluate the view that it had a very limited capacity to absorb a rise in the NMW and modern award rates.

[328] The Retail industry is one of the 4 most award reliant, with 34.5 per cent of employees paid the award rate in 2016. 300 The following table provides economic data on Retail trade over each of the last 3 years and an annual average over the 3-year period. Over the year to the February quarter 2015, employment fell while hours worked increased. Over the following year, both increased, and over the most recent year, both decreased. The considerable variation in these figures, especially compared with the growth rates across all industries, confirms our view that annual industry-level data should be treated as indicative only.301 Around half of all Retail trade workers are classified in the occupation ‘Sales workers’. Similar labour market trends were found for Sales workers, with growth in employment and hours worked over the year to the February quarter 2016 and a reduction over the following year.

[329] We are aware that the Retail industry is undergoing some significant changes, including increased competition through online retailing, international competition and technological change. As explained in the Penalty Rates decision:

‘Most enterprises in the Retail sector and across all industries operated within the domestic market only. A higher proportion of enterprises in the Retail sector focused on the immediate local area only compared with enterprises across all industries, which were more likely to focus Australia wide. We note however that enterprises in the Retail sector are facing increased competition from overseas based on-line retailers.

We note that the Productivity Commission has identified that the most sweeping change impacting upon the retail sector “does not involve physical provision of goods and services” but rather “online provisions playing a much more important role” in relation to some products and services. This in turn has increased competition and reduced the need for brick and mortar establishments.’ 302

[330] The tables and charts that follow provide an overview of the performance of the Retail industry over the past 3 or so years.

Table 4.9: Retail trade, selected economic data

Note: ^a Annual growth rates. ^Survival rates are businesses in June 2010/2011/2012 that were still operating in June 2014/2015/2016. *Sales workers comprise over 50 per cent of total employment in Retail trade. The data presented are in ^b trend terms, ^c original terms and ^d seasonally adjusted.

Source: Statistical report, Table 7.7; ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2017, Catalogue No. 6291.0.55.003; ABS, Business Indicators, Australia, Dec 2016, Catalogue No. 5676.0; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2016, Catalogue No. 5206.0; ABS, Australian Industry, 2015–16, Catalogue No. 8155.0; ABS, Counts of Australian Businesses, Including Entries and Exits, various, Catalogue No. 8165.0.

Chart 4.25: Sales of goods and services, annual percentage change, June quarter 2011 to June quarter 2016

Note: Sales is seasonally adjusted and expressed in real terms from chain volume estimates. Sales of goods and services and gross operating profit estimates are not available for Education and training and Health care and social services, as well as Depository financial intermediation and Insurance superannuation funds subdivisions from Finance and insurance services.

Source: Fair Work Commission, Industry profile—Retail trade, Material to assist AM2014/305—Penalty rates case, January 2017, Figure 4.11; ABS, Business Indicators, Australia, Jun 2016, Catalogue No. 5676.0.

Chart 4.26: Average annual growth rates of labour and multifactor productivity, 2003–04 to 2014–15

Note: The 2007–08 to 2014–15 growth cycle is incomplete. The total market sector comprises all industries except for Public administration and safety, Education and training and Health care and social assistance.

Source: Fair Work Commission, Industry profile—Retail trade, Material to assist AM2014/305—Penalty rates case, January 2017, Figure 4.13; ABS, Estimates of Industry Multifactor Productivity, 2014–15, Catalogue No. 5260.0.55.002.

[331] The following data, taken from the Statistical report (Table 3.4), also shows that the entry rate has increased and the exit rate decreased between 2012–13 and 2015–16.

Table 4.10: Business entry and exit rates, Retail trade, 2012–13 and 2015–16

Source: Statistical report, Table 3.4; ABS, Counts of Australian Businesses, Including Entries and Exits, June 2012 to June 2016, Catalogue No. 8165.0.

[332] The different data show a complex picture for Retail. Profit margins, business entry and exit rates, and survival rates changed little over the 3-year period. Recent growth in sales and service income and productivity (both labour and MFP) has been strong relative to all industries.

[333] The employment data show a more mixed picture and one that is very volatile. Specifically, hours worked grew quite strongly in the years to February 2015 and 2016, but then fell sharply in the year to February 2017, to show a small decline over the 3 years. Employment fluctuated but fell a little over the 3-year period.

[334] We conclude that there are some stresses in the Retail industry, but the above data indicates that, in aggregate, the conditions are not particularly difficult. However, we acknowledge that some individual retail businesses may face more difficult circumstances. We note the apparent fall in employment and hours worked over the past year. Because of the volatility of the annual data on employment, it is not yet clear whether there is a substantial and continuing loss of jobs and hours.

Economic outlook

[335] This section summarises the economic outlook and forecasts from the Australian Government, as presented in the 2017–18 Budget, the RBA and the International Monetary Fund (IMF).

[336] Table 4.11 shows real GDP growth projections from the IMF World Economic Outlook for April 2017. The IMF was optimistic about global economic growth, citing continued cyclical recovery, adjustment to terms of trade of emerging or developing economies and productivity headwinds as key forces of growth. For Australia, the IMF projected real GDP growth to rise to 3.1 per cent in 2017 and 3.0 per cent in 2018 due to a recovery in commodity prices, accommodative monetary policy, supportive fiscal policies/infrastructure investment and less drag from declining commodity (mining) investment. 303

Table 4.11: IMF real GDP growth forecasts

Note: Year-on-year percentage changes shown. World and domestic economy growth rates are calculated using GDP weights based on PPP.

Source: Statistical report, Table 11.2; IMF, World Economic Outlook, April 2017, <http://www.imf.org/en/Publications/WEO/Issues/2017/04/04/world-economic-outlook-april-2017>.

Budget forecasts

[337] The Budget papers indicate that the economic outlook should be viewed in the context of the Australian economy entering another year of economic growth and the continuing transition to broader growth since the end of the resource investment boom.

[338] According to Statement 2: Economic outlook of the 2017–18 Budget Papers (Budget Paper No. 1), growth is expected to be higher at 2¾  per cent in 2017–18 after ‘slowing in 2016–17 as a result of weather related factors’. 304 Growth in household consumption is expected to improve; exports are expected to continue to grow strongly as is non-mining business investment. The economic adjustment that has been underway following the peak of the investment phase of the mining boom has been aided by accommodative monetary policy, a lower exchange rate and a flexible labour market.

Global economic conditions

[339] Global growth is expected to recover over the forecast horizon. Last year, the global economy recorded its lowest growth rate since the GFC but there are encouraging signs that growth is strengthening in 2017. Growth in Australia’s major trading partners is forecast to be above growth across the global economy over the forecast period (Table 4.12). 305

Table 4.12: 2017–18 Budget forecasts of international GDP growth

Note: World growth rates are calculated using GDP weights based on purchasing power parity (PPP), while growth rates for major trading partners are calculated using export trade weights.

Source: Statistical report, Table 11.1; Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2017–18, Canberra, p. 2-9.

[340] The global economic outlook in the Budget papers identifies a number of risks to improved global growth forecast, including policy uncertainty in a number of countries, growing support for policies that could restrict global trade (and therefore growth), and in China, high levels of debt, financial imbalances and over capacity in some sectors. Europe continues to face legacy issues following the GFC and upward movement in US interest rates is also ‘a source of uncertainty’. 306

The Australian Economic Outlook

[341] Australia is in its 26^th consecutive year of economic growth. Treasury expect real GDP growth to ‘rebound to around its potential rate in 2017–18 and 2018–19’. 307 The risks to the outlook for GDP growth include commodity prices, the momentum of household consumption, as well as uncertainty around dwelling investment, a faster than expected decline in dwelling investment (due to a significant number of medium to high density dwellings due for completion) and the pace of the recovery in non-mining business investment.308 The recent increase in commodity prices and the terms of trade are expected to increase national income in the near-term309 while household consumption is expected to grow faster than household income leading to a lower household saving rate.310 The Australian Treasury stated that indicators such as job advertisements, vacancies and business surveys suggest an improved labour market with the unemployment rate forecast to decline modestly as GDP growth increases.311

[342] Table 4.13 presents the Australian Treasury forecasts for the domestic economy.

Table 4.13: 2017–18 Budget, domestic economic forecasts^(a)

Note: The forecasts for the domestic economy are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level—a trade-weighted index of around 65 and a US dollar exchange rate of around 76 US cents. Interest rates are assumed to move broadly in line with market expectations. World oil prices (Malaysian Tapis) are assumed to remain around US$55 per barrel.

(a) Percentage change on preceding year unless otherwise indicated;
(b) Calculated using original data unless otherwise indicated;
(c) Excluding second-hand asset sales from the public sector to the private sector;
(d) Percentage point contribution to growth in GDP;
(e) Through-the-year growth rate to the June quarter;
(f) Seasonally adjusted, through-the-year growth rate to the June quarter;
(g) Seasonally adjusted rate for the June quarter.
(h) The forecasts are underpinned by price assumptions for iron ore, metallurgical coal and thermal coal.
Source: Statistical report, Table 11.3; Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2017–18, Canberra, p. 2-6.

RBA Statement on Monetary Policy – May 2017

[343] The RBA’s economic forecasts are presented in Table 4.14. The RBA forecast for GDP growth for the year ending June 2018 (2¾ per cent to 3¾ per cent) is slightly lower for this period than its forecast released in May 2016 (3 per cent to 4 per cent) although the lowest point of its range accords with the Treasury forecast.

Table 4.14: RBA economic forecasts, per cent

Note: *Rate at end of period. Underlying inflation is calculated by taking the average of the weighted median and trimmed mean measures of inflation. Percentage change for the year-ended shown. Technical assumptions include A$ at US$0.74, Trade Weighted Index at 64.0, Brent crude oil price at US$51 per barrel. Shaded regions are historical data.

Source: Statistical report, Table 11.4; RBA, Statement on Monetary Policy, May 2017, Table 6.1.

[344] In late 2016 and early 2017, the RBA revised its projection upwards for growth in Australia’s major trading partners—with this growth expected to be around its long-term average this year before easing slightly in 2018. According to the RBA, since late 2016 most forecasters have revised up their forecasts for global growth. 312

[345] The RBA noted that while the terms of trade increased in the March quarter 2017, they are forecast to decline due to falls in commodity prices. 313 However, GDP growth is expected to increase to be above its potential over the forecast period as resource exports increase and the drag from mining investment subsides.314 The forecast for non-mining investment is subdued with growth expected to pick up later in the forecast period. The RBA expects household consumption to grow at a bit above its average since the GFC over the forecast period with household income expected to grow at a similar rate to consumption.315 However, indicators of non-mining investment are mixed.316

[346] The RBA expects employment growth to be fairly steady ‘at around its long-run average’, after it ‘picked up a little’ since late last year following below-average growth over much of 2016. 317 The unemployment rate is expected to edge only a little lower over the forecast period which ‘suggests that spare capacity in the labour market will remain over the next few years.’318

[347] The RBA expects wages growth to remain at around its current rate over the next year and then to pick up over 2018 and 2019, while ‘[h]eadline inflation is expected to be between 2 and 3 per cent throughout the forecast period’. 319

[348] The outlook for the Chinese economy, which will affect commodity prices and exports, is a key uncertainty around the RBA’s economic forecasts. 320 Domestically, the RBA’s uncertainties are around the amount of spare capacity in the labour market over the next few years. The recent increase in the terms of trade could lead to higher economic activity and employment than expected, as might the components of GDP growth, and this would reduce the unemployment rate further than expected. On the other hand, reductions to the amount of spare capacity could come from firms meeting their demand for labour through increasing the hours worked by their existing employees, and this may not reduce the unemployment rate.321

[349] The Department of Employment’s Monthly Leading Indicator of Employment (indicator) is based on a number of economic indicators and is designed to predict turning points in cyclical employment. The indicator increased for 12 consecutive months to May 2017, suggesting that employment growth may increase above its long-term trend rate of about 1.4 per cent per year after a lag (Chart 4.27).

Chart 4.27: Department of Employment Monthly Leading Indicator of Employment

Source: Statistical report, Chart 11.1; Department of Employment, Monthly Leading Indicator of Employment, May 2017, <http://employment.gov.au/department-employment-s-leading-indicator-employment-latest-release>.

Conclusion

[350] As is often the case, not all the signals about the strength of the economy and the labour market point in the same direction.

[351] Our conclusions are influenced by the summary of economic conditions provided by the RBA in its May 2017 Statement on Monetary Policy:

‘The Australian economy grew by 2.5 per cent over 2016, which is a bit below central estimates of potential growth. GDP growth rebounded to 1.1 per cent in the December quarter, confirming that the weak outcome in the September quarter largely reflected temporary factors. Recent data are consistent with moderate growth in early 2017. Employment growth was fairly subdued over 2016, but picked up to be around average in early 2017. Looking ahead, economic growth is expected to pick up gradually to be a bit above potential growth, supported by the low level of interest rates and the ongoing recovery in the global economy’. 322

[352] GDP growth in Australia outperformed the average of the major 7 OECD countries across 4 of the 5 quarters to the December quarter 2016. RNNDI has grown more quickly than GDP over the past year, as the terms of trade have improved. Economic conditions have varied across states, with stronger growth in New South Wales and Victoria and weakest growth in Western Australia. As usual, the different parts of the economy have had diverse outcomes. Agriculture, forestry and fishing has done particularly well while there has been a decline in Construction.

[353] Business conditions generally look quite healthy. Profitability grew by a very strong 26 per cent for all industries and by a still strong 10 per cent for non-mining industries over the past year. As a result, the profit share of factor income rose. The most recent data (for 2015–16) show that the growth in profit margins was greater for small business than for all businesses. Consistent with these profit outcomes, bankruptcy rates remain quite low and the entry of new businesses exceeded the exits by a margin that exceeds that of 2015. The most reliable business surveys show that businesses see their conditions as the most positive since the GFC. Growth in output was below the all industry average for 3 of the 4 most award-reliant industries and profits grew in only 2 of them.

[354] Labour productivity in the market sector grew more strongly across the year 2016 than it had in the previous two years. After some years of decline, MFP continued its more recent modest growth. It grew more strongly in the year to June 2016 than it had in all but one of the past 10 years. The 2.3 per cent per annum growth in labour productivity in the period 2007–08 to 2014–15 exceeds or is virtually the same as growth in all periods from 1973–74, except 1993–94 to 1998–99. Real and nominal unit labour costs have remained reasonably steady over the 4 years to mid-2016. The most recent sharp downturn is largely attributable to the rise in the terms of trade during the year. This is not expected to persist.

[355] The unemployment rate has remained steady for several years. There has been some rise in underemployment, but when the extra hours that the underemployed wish to work is taken into account, underemployment has risen only a little. On this basis, movements in underemployment are continuing to track the unemployment rate. A large majority of part-time workers were not seeking extra hours of work. While about 25 per cent said that they would like to work extra hours, only half of these had taken active steps to find more work.

[356] When the impact of the ageing of the population is taken into account, there has been no fall in either the participation rate or the employment to population ratio. These are signs of strength in the labour market. We note, however, that the full-time employment of men of working age continues its long term decline.

[357] Inflation and wages have continued to grow at historically low rates. Consumer inflation has mostly been below 2.0 per cent, though the CPI rose by 2.1 per cent in the year to the March quarter 2017. The prices faced by producers were boosted by the rise in the terms of trade during 2016. Wages growth was highest for agreements and lowest (at 1.9 per cent) for the WPI. Growth in the NMW and modern award rates, at 2.4 per cent, exceeded inflation and growth in both the WPI and AWOTE.

[358] Employment continued to grow in 2016, but hours worked was flat. The main reasons for the small growth in hours worked were a relatively high growth in part-time employment (rather than full-time) and a decline in the average number of hours worked by full-time workers.

[359] Both the Treasury and the RBA expect growth to pick up in 2017–18, to around its potential growth rate. They expect that as a result, employment will grow ‘at around its long-run average’ 323 with little change in unemployment.

5. Relative Living Standards and the Needs of the Low Paid

[360] The Panel is required by both the minimum wages objective and the modern award objective to take into account relative living standards and the needs of the low paid when setting fair and relevant minimum wage rates. Those matters are different, but related, concepts 324 and must be considered, together with the other matters in ss.3, 134(1) and 284(1) of the Act, in the context of available data and research.

[361] The assessment of relative living standards requires a comparison of the living standards of workers reliant on the NMW and minimum award rates determined by the Review with those of other groups that are deemed to be relevant and focuses on the comparison between low-paid workers (including NMW and award-reliant workers) and other employed workers, especially non-managerial workers. 325

[362] The assessment of the needs of the low paid requires an examination of the extent to which low-paid workers are able to purchase the essentials for a ‘decent standard of living’ and to engage in community life, assessed in the context of contemporary norms. 326

[363] After considering some preliminary issues, we examine relative living standards before turning to consider the needs of the low paid, although we recognise that the 2 concepts overlap.

Relevant Comparators

[364] In its submission to this year’s Review, ACCER requested that the Panel reconsider ‘its assessment and treat the level of pensions as having significant relevance and weight in the setting of safety net wages for low-paid workers’. 327 ACCER has consistently made submissions, since 2010, that the Age and Disability Support Pension rates and the estimated living standards of pensioners are a relevant consideration in assessing the living standards of the low paid.328

[365] In its submission to the 2015–16 Review, ACCER said ‘[p]rimary emphasis needs to be given to the wages of other workers across the broad range of incomes … but that does not exclude other matters being taken into account’. 329 Essentially this is what the Panel has done as evidenced by the statement in the 2015–16 Review decision:

‘Consistent with our past approach, our assessment of relative living standards focusses mainly on the comparison between award-reliant workers and other employed workers, especially non managerial workers. This focus does not exclude a comparison with other relevant groups’. 330

[366] However, the Panel went on to find that ‘a comparison with pensioners for the purpose of assessing the relative standards of the low paid is of very limited relevance’. 331

[367] ACCER also referred to the Pension Review Report of 27 February 2009 and asserted that the Panel, in its 2015–16 Review decision, did not consider this report. Whilst no direct reference was made to the Pension Review Report in the 2015–16 Review decision it was before the Panel by virtue of ACCER’s submission 332 and was taken into account along with the other extensive material before the Panel.

[368] We do not propose to depart from our conclusion in the 2015–16 Review decision. 333

Award-reliant and the low-paid workforce

[369] In the 2015–16 Review, the Panel stated:

‘There is broad acceptance of the proposition that the two-thirds of median (adult) ordinary time earnings constitutes a reasonable basis for identifying the low paid. As in past AWRs, we accept that adult award-reliant employees who receive a rate of pay that (as a full-time equivalent) is below two-thirds of median (adult) ordinary time earnings are an appropriate and practical benchmark for identifying who is low paid…

There is, however, no single accepted measure of two-thirds of median (adult) ordinary time earnings. The surveys that provide the information about the distribution of earnings from which a median is derived vary in their sources, coverage and definitions in ways that affect the absolute values of average and median wages (and two-thirds of these values).’ 334

A number of award-reliant employees are paid at levels that place them above that low pay benchmark and are thus not low paid in the usual sense. The circumstances of these employees are relevant to our assessment for the reasons that we set out in the 2013–14 Review decision’. 335

[370] According to the most recent data, two-thirds of median full-time earnings is $833.33 (Characteristics of Employment survey) or $917.33 (EEH). 336

[371] The Australian Government referred to data from the EEH 2016 which found that 22.7 per cent of employees (2.3 million employees) had their pay set by an award in May 2016, higher than the 18.8 per cent in May 2014. 337 The ACTU noted that the proportion of employees that were award reliant increased by 3.9 percentage points between May 2014 and May 2016 while the proportion on collective agreements fell by 4.7 percentage points over the same period.338 The Australian Government highlighted that, while this is part of a trend since 2010, the ABS review of their framework for determining method of setting pay resulted in a significant shift in the classification of employees in the NSW public sector from collective agreements to the award only category in 2016.339

[372] In addition, the Australian Government used data from the EEH 2016 to estimate that 1.9 per cent of employees are paid the NMW rate. 340 The Australian Government also submitted that the NMW rate features in 45 of the 122 modern awards and that award minimum wages range from $672.70 per week up to $3189.27 per week in the Air Pilots Award 2010.341

[373] Further analysis of the EEH 2016 by the Australian Government found that 12.4 per cent of all employees were considered to be low paid (defined as less than two-thirds of the median hourly wage), with 29.3 per cent of award-reliant workers considered to be low paid. 342 Analysis of the HILDA survey by the Australian Government showed that low-paid workers were more likely to be young, female, single, without children and employed on a casual basis.343

[374] The ACTU highlighted that the EEH 2016 showed that more than one in 5 employees are paid ‘the lowest wage that they may legally be paid’ and that increases arising from the Review ‘are all the more pertinent as the share of workers on the NMW and award-only continues to increase’. 344

[375] The ACTU submitted that most award-reliant workers (85.6 per cent) are adults aged 21 years or older and that award-reliant employees are ‘over represented’ among those aged under 25 years. The ACTU added that the ‘under representation’ of award-reliant workers in the 35–54 years age group is partly ‘due to women with children being removed from employment’ where women are disproportionately reliant on awards. 345

[376] The ACTU contended that, compared with other workers, award-reliant workers are more likely to be:

● female;
● working part time;
● employed on a casual basis;
● working in a small business;
● working in the public sector; and
● earning less than $1000 per week, for full-time non-managerial workers paid at the adult rate. 346

[377] The ACTU undertook analysis using unpublished data from the EEH 2016 and concluded that 41.9 per cent of award-reliant employees have hourly earnings at or below the C10 rate. 347 This was ‘a little lower’ than estimates for May 2012 and May 2014,348 while the proportion earning above the C2(b) rate increased from 20.9 per cent in May 2014 to 30 per cent in May 2016 and was ‘likely to be related’ to the increase in award reliance in Education and training.349 The ACTU noted that the proportion of award-reliant employees in the private sector also rose.350 The ACTU contended that an increase in award reliance is related to a changing industry structure with the ‘most rapidly growing industries’ being service industries.351

[378] The ACTU’s analysis of employees by business size using the EEH 2016 found ‘a shift in concentration’ from small businesses to large businesses 352 with non-managerial award-reliant workers in small businesses having lower average hourly earnings than award-reliant employees in larger businesses.353 The Panel notes that the increase from 2014 to 2016 in the proportion of award-reliant employees earning above the C2(b) rate may well be due, at least in part, to the recoding of NSW public sector employees mentioned above. This recoding is also likely to have significantly contributed to the recorded shift in concentration of award-reliant employees from small businesses to large businesses.

[379] ACCI submitted that ‘[a]bsent further evidence, the overall conclusion should be that the typical households of award-reliant workers have higher living standards relative to other workers than the headline or nominal differences in pay would imply.’ 354 We do not accept this conclusion. The Australian Government provides data on the earnings of the partners of low-paid workers (admittedly not the award workers that ACCI refers to, but relevant nonetheless). Contrary to ACCI’s submission, the partners of low-paid workers are typically either not employed or low paid themselves. Twenty-five per cent of couple low-paid workers have a partner who is not employed. A further 30 per cent have partners who earn no more than $50 000 per annum.355

Award-reliant and low-paid households in the income distribution

[380] The Australian Government, as it has in previous Reviews, presented data on low-paid employees across the equivalised household income distribution for both employee households (with at least one employee) and all households (including jobless and retiree households), using the most recent wave of the HILDA survey (for 2015). 356

Chart 5.1: Distribution of low-paid employees, by equivalised household disposable income, comparing all households and employee households, 2015

Source: Australian Government submission, 29 March 2017 at p. 10, Chart 2.2; HILDA Survey, release 15 (December 2016), wave 15.

Chart 5.2: Distribution of low-paid employees, by equivalised household disposable income, employee households only, 2015

Source: Australian Government submission, 29 March 2017 at p. 11, Chart 2.3; HILDA Survey, release 15 (December 2016), wave 15.

[381] In relation to these data, the Australian Government submitted:

‘… Across all households, low-paid workers tend to be concentrated in the middle of the income distribution, with only 17.9 per cent of low-paid workers in the bottom two income deciles, and 13.6 per cent in the top two deciles.’ 357

‘When considering employee households only, low-paid workers remain scattered across the income distribution although there are a higher proportion of low-paid employees in the lower deciles than the top deciles. For example, 62.4 per cent of low-paid employees are in the bottom five income deciles, with 28.4 per cent in the bottom two deciles. This means that 37.6 per cent are in the top five deciles, with 10.7 per cent in the top two deciles…’ 358

‘… low-paid part-time workers are more likely to be in the lower household income deciles than low-paid full-time workers’. 359

[382] The Australian Government submitted that 26.7 per cent of low-paid women were in the bottom 2 income deciles compared with 30.3 per cent of low-paid men, and 11.9 per cent of low-paid women were in the top 2 income deciles compared with 9.1 per cent of low-paid men. 360

[383] The Australian Government also submitted that over two-thirds of the 22.9 per cent of low-paid workers who were full-time students were dependent students whose household income and living standards were likely to be determined by their parents’ income rather than their own. 361 Analysis of low-paid workers in a couple household found that around one-quarter of partners of low-paid employees were not employed, with a further 10 per cent earning less than $25 000.362

[384] From this analysis, the Australian Government concluded that ‘the vast majority’ of workers affected by Review decisions are not defined as low-paid employees and that nearly half of low-paid workers are located in the top half of the household income distribution. 363

[385] In the 2015–16 Review decision, the Panel stated:

‘The distribution of low-paid workers across employee households, for which the principal source of income is wages, provides the best basis for assessing the relative living standards and the needs of the low paid on the basis of where they fall within the distribution of household income.’ 364

‘… we do not accept the proposition that most low-paid workers are not in low-income households. Around two-thirds of low-paid employees are found within the bottom half of the distribution of employee households and have lower living standards than other employees.’ 365

[386] We remain of that opinion. We think that there is little basis for comparing the household income of the low paid and the award reliant with that of households that are principally reliant on social welfare benefits or private savings, when the purpose is to identify whether an increase in the NMW and modern award rates of pay will assist the relative standard of living of the low paid.

[387] Research undertaken for the Commission using data from the HILDA survey (Research Report 1/2017—Award-reliant workers in the household income distribution) finds that around 70 per cent of award-reliant employees are located in the bottom half of the household income distribution of employee households and almost half are located in the bottom 3 deciles. This compares with fewer than 15 per cent in the highest 3 deciles. Almost one in 5 award-reliant employees work full-time hours and are located in the bottom 3 income deciles. While over one-third of award-reliant employees are students, they are evenly divided between dependent and non-dependent students, with more than half of award-reliant employees that were dependent students located in the bottom half of the household income distribution. While the majority of secondary earners were also located in the bottom half of the household income distribution, they were comparatively more likely to be located across the higher income deciles. 366

[388] The ACTU submitted that the research ‘clearly demonstrates the inaccuracy of the notion that many of the award reliant are women supplementing the income of the breadwinner in high income households’. 367

[389] The Victorian Government, in the context of older workers being ‘more exposed to lower wage outcomes’, highlighted that the research showed that 28 per cent of award-reliant employees were 45 years and over. 368

[390] ACCER submitted that a focus on the award reliant is ‘far too narrow’ and preferred that the Panel look into the circumstances of the low paid. 369 ACCER added that it is ‘unnecessary’ to limit the Review to award-reliant workers who ‘may be very different to the low paid’370 and that:

‘A focus on low paid workers is consistent with the object of the Fair Work Act to promote social inclusion (section 3) and is necessary for the FWC to carry out its obligation to establish and maintain a safety net of fair minimum wages, taking into account, among other matters, “the needs of the low paid” (section 284(1)).’ 371

[391] The above research presents an alternative picture of the relative position of award-reliant employees in the household income distribution. While the Australian Government concluded that low-paid workers tend to be concentrated in the middle of the income distribution of all households, the same analysis restricted to employee households shows that over 60 per cent of low-paid workers are located in the bottom half of the household income distribution.

[392] We think that it is clear that workers who receive the NMW or a modern award rate of pay are disproportionately located in the lower deciles of the relevant distribution of household disposable income.

Relative living standards

Real earnings

[393] The NMW has increased above inflation over the decade and, indeed, in most years throughout the decade. The NMW has increased in real terms by 3.5 per cent over the 10 years to the December quarter 2016. Over the shorter-term, the real NMW has increased by 3.6 per cent over the 5 years to the December quarter 2016, with an increase of 0.9 per cent occurring over the year to the December quarter 2016 (Table 5.1).

Table 5.1: Real national minimum wage and percentage change—2006–2016, December quarter 2016 dollars

Note: Real minimum wage calculated from C14 (NMW) and the CPI from the December quarter of each year.

Source: Statistical report, Table 9.1; ABS, Consumer Price Index, Australia, Mar 2017, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award.

[394] As Chart 5.3 shows, while there has been a rise in the real value of the lowest award rate over the decade, this is not true for higher rates. The higher rates declined in real terms up to mid-2009 and have increased since.

Chart 5.3: Real value of selected minimum wage rates, December quarter 2006 to March quarter 2017, index (Dec-06 = 100)

Note: Between 27 March 2006 and 30 June 2009, the minimum rates are those in Australian Pay and Classifications Scale (and from 1 July 2009, transitional Australian Pay and Classification Scale) derived from the Metal, Engineering, and Associated Industries Award 1998; post 1 January 2010 minimum rates C14, C10 and C4 are those in the Manufacturing Award and the L4 rate from the Professional Employees Award 2010. For the purpose of the analysis, the L4 rate was calculated by dividing the annual salary for the L4 classification by 365 and multiplying by 7 to get a weekly rate from which a comparable real value could be derived.

Source: Statistical report, Chart 9.1; ABS, Consumer Price Index, Australia, Mar 2017, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award.

NMW relative to other wage measures

[395] We now consider measures of the wages of award-reliant workers relative to those of the workforce as a whole, with particular focus on the comparison between award-reliant workers and other employees.

[396] Chart 5.4 shows the C14 rate as a proportion of median weekly earnings of full-time employees in their main job between 2000 and 2016. The ratio of the C14 rate to median earnings declined over this period, with most of the decline occurring between August 2005 and August 2008.

[397] Since the first Review decision in 2010, the ratio of the C14 rate to median earnings has decreased marginally (from 54.3 per cent in August 2010 to 53.8 per cent in August 2016), although it has risen from the trough of 52.7 per cent in August 2012.

Chart 5.4: C14 rate relative to median weekly earnings of full-time employees in main job, 2000 to 2016

Note: Median earnings are measured in August of each year. Following the amendments to the Workplace Relations Act 1996 (Cth) taking effect in 2006, the Federal Minimum Wage was set at $12.75 per hour, equivalent to $484.50 per week.

Source: Statistical report, Chart 8.4; ABS, Characteristics of Employment, Australia, various, Catalogue No. 6333.0; ABS, Employee Earnings, Benefits and Trade Union Membership, Australia, various, Catalogue No. 6310.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award.

[398] While acknowledging the Panel’s view on the ‘limited significance’ of comparing the Australian minimum wage bite with that of other OECD countries, 372 the ACTU submitted that a declining minimum wage bite is ‘very far from a necessary and inevitable consequence of globalisation and/or technological change … it is an outcome of the regulatory frameworks and institutions specific to a country. Therefore insight is to be gained by comparing minimum wage outcomes for Australia as against other countries’.373 ACCI also urged the Panel ‘to give greater weight to comparisons of Australia’s NMW with those in other developed nations’374 and submitted that:

‘Australia continues to have one of the highest minimum wages in the world relative to the average worker, and the higher rates imposed by the award system further increase the disparity, and negatively impact Australia’s competitiveness.’ 375

[399] The Australian Government noted that Australia’s minimum wage bite is ‘greater than many comparable’ OECD countries whether measured as a median earnings bite or in terms of purchasing power. 376 The ACTU submitted that Australia’s minimum wage bite of 0.53 (full-time employees with median earnings as the base) was ‘just above’ the OECD average of 0.52 in 2015, while Australia’s minimum wage bite of 0.44 (full-time with average wages as the base) was ‘above’ the OECD average of 0.40 in 2015.377

[400] The Victorian Government noted that while Australia’s minimum wage bite is high relative to other OECD countries, it has declined over the past decade. Citing Research Report 1/2016—An international comparison of minimum wages and labour market outcomes, the Victorian Government submitted that Australia had the lowest growth rate in minimum wages from 2003 to 2014 relative to the 5 other countries analysed (New Zealand, France, United Kingdom, United States, and Canada). 378 The ACTU submitted that 9 OECD countries experienced a falling minimum wage bite (both median and average wages for full-time workers), with Australia experiencing the fourth largest decline in the median wage bite, despite ‘Australia being one of the least affected countries by the GFC’.379

[401] Consistent with our past approach, we maintain the position that data comparing the Australian minimum wage bite relative to other OECD countries is of limited significance in evaluating the relative living standards of the low paid. 380 In saying this, we accept that it has relevance for other questions, including the diversity of outcomes that are possible or are being promoted in countries that have economies that are broadly similar to Australia.

[402] Chart 5.5 shows the changes in the nominal value of the C14 and C10 award rates, relative to changes in AWOTE, AWE and the WPI between December 2009 and March 2017. This chart is based on Chart 8.1 in the Statistical report, however we have chosen to base the comparison on 2009 because the past trends started to alter at that date. Specifically, the divergence between growth in the award rates and the market rates almost ceased. This can be seen in the chart. The growth in C14 and C10 has matched quite closely to the growth in the WPI, and been only a little below growth in AWOTE.

Chart 5.5: Growth in C14 and C10 relative to AWOTE, AWE and WPI, December quarter 2009 to March quarter 2017, index (Dec-09 = 100)

Note: This chart reflects available data for the period December quarter 2009 to March quarter 2017. WPI is the index for total hourly rates of pay excluding bonuses in both private and public sectors. It is unaffected by change in the quality or quantity of work performed. AWOTE is calculated by dividing estimates of weekly ordinary time earnings by estimates of the number of employees. It is calculated before taxation and other deductions such as superannuation. It also excludes payments which are not related to the reference period such as overtime, leave loading and redundancy payments. AWOTE estimates refer to full-time adult employees. AWE is the gross (before tax) earnings of employees (excluding salary sacrifice). The C14 and the C10 are minimum award rates set under the Manufacturing Award and the former Metal, Engineering and Associated Industries Award 1998. AWOTE and AWE data are published half-yearly for May and November, hence, a quarterly series has been derived. AWOTE and AWE data are expressed in original terms.

Source: Based on Statistical report, Chart 8.1; ABS, Average Weekly Earnings, Australia, Nov 2016, Catalogue No. 6302.0;
ABS, Wage Price Index, Australia, Mar 2017, Catalogue No. 6345.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing Award (from 1 January 2010).

[403] The Victorian Government provided data from the EEH 2016 on the average total cash earnings of non-managerial employees by method of setting pay (reproduced below as Table 5.2) and submitted that these data show ‘continuing disparities’ between award wages and wages for collective agreements and individual arrangements, and that this shows ‘a level of income inequality between low paid workers, who are generally award reliant and those on average weekly earnings or above usually set by agreement or individual arrangement’. 381

[404] In May 2016 the average hourly total cash earning rate for award only non-managerial employees ($29.60) was around $9–$10 lower than employees who have their method of setting pay determined by collective agreement ($39.60) or individual arrangement ($38.50).

Table 5.2: Average weekly and hourly total cash earnings of non-managerial employees by method of setting pay (May 2016)

Source: Victorian Government submission, 29 March 2017 at para. 24, Table 2; ABS, Employee Earnings and Hours, Australia, May 2016, Catalogue No. 6306.0.

Household disposable income

[405] In the 2015–16 Review decision the Panel noted:

‘The relative living standards of employees on the NMW and award-reliant employees are affected by the level of wages that they earn, the hours they work, tax-transfer payments and the circumstances of the households in which they live. 382  The net effect of these factors is summarised in the notion of equivalised household disposable income. It is therefore necessary to have regard to a range of measures of the relative living standards of the low paid and the household circumstances in which they live.’383

[406] Further, broadly re-stating the position from earlier Reviews, 384 the Panel went on to state:

‘The effect of taxes and transfers on disposable incomes of the low paid is relevant to the needs of the low paid and their relative living standards, both in terms of specific changes in the tax-transfer system at the time of a particular AWR and in assessing broader information in relation to measures of the relative income of the low paid…’ 385

[407] The Australian Government, 386 Federal opposition387 and ACCI388 also emphasised the importance of considering living standards at the household level.

[408] The Australian Government emphasised that the ‘tax-transfer system plays a large role in equalising the distribution of income among Australian households’ 389 and further submitted:

‘Only part of an increase to the minimum wage and award classification wages flows through to employees when taxes and transfers are taken into account. The Government shares the view of the Panel’s 2014 decision, which stated that “increases in minimum wages are a blunt instrument for addressing the needs of the low-paid” (Paragraph 360), since some low-paid people live in households with high effective marginal tax rates, and others live in households with relatively high disposable incomes …’ 390

[409] Similarly, ABI and NSWBC in reply submitted that the tax-transfer system has ‘a vital role to play in complementing the minimum wage system’ because ‘[m]inimum wages are a blunt instrument involving trade-offs associated with the benefits of improving the incomes of those employed on minimum wages and the costs of eliminating opportunities for lower skilled workers who are unemployed’. 391

[410] ACCER, in response to the Australian Government position, submitted that:

‘The Government’s arguments about the inefficiency of wage increases, of better ways to help the low paid and of wage increases being blunt instruments to provide for the needs of the low paid, are disconnected from the real world’. 392

[411] In relation to the Panel’s consideration of the tax-transfer system, the Federal opposition, 393 ACTU,394 ACOSS395 and ACCER396 drew attention to the consequences of recent changes in transfers for families (further discussed in the following section).

Tax-transfer system changes

[412] The Panel noted in the 2013–14 Review decision that the ‘prospect of legislative change is not something that we propose to take into account in making our decision’ 397 and reaffirmed this position in the 2014–15 Review decision.398

[413] Acknowledging the Panel’s position, the Federal opposition nevertheless submitted that:

‘… we would urge the Panel to scrutinise carefully any argument by the Government that the tax and transfer system can be solely relied upon to provide targeted support to the lowest-paid workers … If the Government’s plans were legislated in full, low income Australians would be significantly and disproportionately worse off.’ 399

[414] Consistent with the position taken by the Panel in the past we do not propose to take prospective legislative changes into account.

[415] ACOSS detailed a series of legislated changes to social security payments that ‘leav[es] families with low incomes more reliant on wage increases’. 400 Some of these changes were effective as far back as 2009.

[416] Recent changes to the tax-transfer system include:

• The abolition of the Schoolkids Bonus. In 2016 the Schoolkids Bonus was valued at $430 per annum for each primary school student and $856 per annum for each secondary school student. The final instalment of the bonus was paid in July 2016.



• The Social Services Legislation Amendment Act 2017 included a measure to freeze the base and the maximum rate of Family Tax Benefit (Part A) and the maximum rate of Family Tax Benefit (Part B) for low-income families in nominal terms from 2017 to 2019. Whilst this measure does not commence until 1 July 2017 it will have application during the period when the Panel’s decision will apply. The measure does not reduce nominal incomes as such but will reduce their real value by the amount of inflation over the two years.



• The Social Services Legislation Amendment Act 2017 maintains the nominal value of income areas from 1 July for working age payments and parenting payments at their current levels for 3 years.

[417] In addition to these changes in the tax-transfer system there are others that will affect low-income households. The Low Income Supplement will cease from 30 June 2017. 401

[418] The Income Support Bonus ceased in 2016 with the last instalment paid in September 2016. 402

[419] The Federal opposition was the only party to mention the cuts to the Energy Supplement in submissions, and provided no detail of the nature or impact of these changes. 403

[420] The ACTU also drew the Panel’s attention to what was then prospective legislative change related to government assistance for child care 404 ahead of the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Act 2016 being passed in both Houses of Parliament on 27 March 2017 and receiving Assent on 4 April 2017.405

[421] The Child Care Subsidy in the Jobs for Families Child Care Package will not commence until 1 July 2018 and therefore its impact would be more appropriately dealt with in the 2017–18 Review.

[422] The Australian Government did not provide a summary of recent changes to the tax-transfer system that would affect the relative living standards and needs of the low paid. In the light of this, we have relied on information provided in other submissions which strongly suggest that changes in the past 2 budgets have reduced, rather than increased, the relative living standards of the low paid.

[423] ACCER advocated an approach by which identified reductions in welfare payments under the tax-transfer system, in particular the abolition of the SchoolKids Bonus, were quantified in dollar terms and that the Panel would then include a component in any increase to the NMW and modern award wages to specifically compensate for such reductions. 406 ACCER further proposed the development of a process for phasing in such increases over time, and also to compensate for the past discounting of wage increases that ACCER asserts had been implemented by wage-setting tribunals because of benefits to low-paid households in the tax-transfer system.407

[424] We reject the proposition that past decisions of the Panel and its predecessors have erred in the manner in which they have taken into account changes in the tax-transfer system, and that this needs to be compensated for in this and in future Reviews.

[425] We accept that changes in the tax-transfer system, whether of benefit or detriment to low-paid households, are relevant to our consideration of relative living standards and the needs of low-paid employees. To the extent that identified changes to the tax-transfer system have adversely impacted low-paid employees, those changes have been taken into account pursuant to s.134(1)(a) and s.284(1)(c). However, we do not accept that a mechanistic or formulaic approach can be taken to our consideration of this matter such that the dollar amount of any particular detrimental change to the tax-transfer system necessarily becomes determinative of the quantum of an increase to minimum rates.

[426] It is not the role of the Panel to use NMW orders or increases in modern award wages to specifically counter-act changes to the tax-transfer system enacted by government. Further, we reject the proposition that we should adopt a policy to redress changes in the tax-transfer system over the longer term for the same reasons that we rejected United Voice’s proposal for a minimum wage target in the 2016–17 Preliminary decision. It needs to be made clear however that any future substantial and sustained changes to the tax-transfer system which operate to reduce the household incomes of the low paid will be taken into account as matters affecting the relative living standards and the needs of the low paid, in our assessment of the quantum of future adjustments to the NMW and award wage rates.

Disposable income of award-reliant workers and households

[427] As they have in previous submissions, the Australian Government provided modelling (Table 5.3) showing the impact of the 2016 NMW increase on the disposable income of a range of household types.

Table 5.3: Effect of 2016 minimum wage increase on household disposable incomes

Note: Figures are based on tax and benefit rates applicable on 1 July 2016. Part-time hours are assumed to be 15 hours per week. The modelling does not include indexation of benefits as it has been designed to specifically to show the Panel the direct impact of the 2017 minimum wage increase on household disposable incomes. Indexation of benefits is a separate process in the tax-transfer system and is not affected by the Panel’s decision.

Source: Australian Government submission, 29 March 2017 at para. 272, Table 8.3; Australian Government modelling.

[428] As can be seen from the table the percentage of wage increase retained ranged from a high of 79 per cent (for a full-time employee, single with no children and earning the NMW) to just 9.9 per cent (for a couple one full time and one part time both earning NMW with one child aged 3 and one child aged 9).

[429] ACOSS reflected on the lower increases in disposable income received by families with children shown in Table 8.4 of the Statistical report, and suggested ‘[a] likely reason for this is reductions in the real value of Family Tax Benefits’. 408

[430] The Australian Government also provided modelling of the real growth in disposable income for a range of households for January 2012–January 2017. 409

[431] In regards to the Australian Government modelling, ACCER in-reply, suggested that the choice of households was ‘narrow and selective … in that they focus on families in receipt of Centrelink income support payments received by singles and couples with children and, for comparative purposes, singles and couples without children. They say nothing about the operation of the tax-transfer system for families who do not receive income support allowances, but who receive Family Tax Benefits (family payments).’ 410 ACCER also commented that this modelling does not show the impact over the full year and the reduction in family payments resulting from minimum wage increases.411

[432] The Australian Government submitted that the current (to January 2017) Australian tax-transfer system ‘has also assisted real income growth in minimum wage households. The Government has modelled the percentage change in real disposable income for a number of hypothetical households over the five years from 2012 to 2017’. 412

Table 5.4: Changes in real disposable household income, 2012 to 2017