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The ACTU's Living Wage Claim
Steve O'Neill
Economics, Commerce and Industrial Relations Group
Contents
Introducton
The 'Living Wage' and the Harvester Judgment
The Current Process
Components of the Claim
Stage 1
Stage 2
Stage 3
Discriminatory Practices
Responses and submissions
The Federal Government
Australian Chamber of Commerce and Industry (ACCI)
Business Council of Australia (BCA)
Australian Chamber of Manufacturers-Metal Trades Industry Association
(ACM-MTIA)
National Farmers Federation (NFF)
Australian Labor Party (ALP)
Australian Democrats
Australian Council of Trade Unions (ACTU)
Wage Costs Impacts
A Possible Outcome?
Endnotes
The Australian Industrial Relations Commission (AIRC) is currently considering
a 'living wage' claim brought by the Australian Council of Trade Unions
(ACTU). In its submission, the ACTU has provided evidence which claims
that the current award pay of employees such as labourers, machinists
and cleaners does not allow them to maintain a reasonable standard of
living.(1) However the claim covers a broader group of occupations than
these three.
Award wages were reviewed by the Australian Industrial Relations Commission
(AIRC) in its Safety Net Adjustment decision of October 1995.(2) This
decision allowed minimum award rates to be increased by $8.00. However,
under both the Industrial Relations Reform Act 1993 and the Workplace
Relations Act 1996, workplace agreements rather than awards are to
act as the primary vehicle for delivering pay increases. This is on the
proviso that any such agreement does not disadvantage workers vis-a-vis
the key provisions of any relevant award (i.e. agreements should not undercut
award provisions).(3)
While both the current Government and the previous Labor Government have
promoted workplace agreements, according to the Reserve Bank of Australia
about 20 per cent of the workforce have not been able to secure workplace
agreements since 1991-nor, indeed, any other form of over-award pay.(4)
For this group, awards remain the primary instruments stipulating pay
and thus income. Note that research from the Department of Industrial
Relations shows that not all registered agreements made under Federal
or State legislation specify pay rates and certainly not all informal
workplace agreements contain pay provisions.(5)
In using the term 'living wage' the ACTU is seeking to reinstate the
purpose behind the famous Harvester Judgement of Justice Higgins in 1907.(6)
Although not making an award, Justice Higgins inquired into what constituted
a fair and reasonable wage to allow an unskilled worker to support a family
in reasonable comfort. He chose 7 shillings per day or 42 shillings per
week (48 hour week), after assessing a basic needs cost of 32 shillings
and five pence. The margin of almost 10 shillings was accounted for in
costs on which he did not take evidence such as lighting, clothes, boots,
furniture, utensils, property rates etc.(7) This decision has a particular
importance because it sought to place the needs of a family as
an irreducible minimum and distinct from other parts of a wage such as
a component for skill, monopoly, or other considerations. As Justice Higgins
noted:
... unless society is to be perpetually in industrial unrest, it is necessary
to keep this living wage as a thing sacrosanct beyond the reach of bargaining.(8)
Note, however, that in his book Six Wage Concepts Hutson does
not attribute the rubric of a 'living wage' to Justice Higgins. Rather,
by the end of the nineteenth century the term had made its way into union
policy and statements, had been adopted by the newly formed Labor Party
and had found its way into parliamentary debates.(9)
Following the AIRC's October 1995 decision, actual award pay rates were
varied to include the $8.00 in early 1996. There has been no general award
movement since this decision and the fragmentation of the workforce between
those who can secure agreements and those who cannot has become a concern
for the union movement.(10)
The Australian Council of Trade Unions (ACTU) settled on a wages strategy
over May and June 1996 in part as a response to the changed political
environment after the March Federal Election (and thus the end of the
Accord) and in part as a means of shaping enterprise bargaining over the
next three years by attempting to establish a higher floor to bargaining.(11)
It lodged the first part of a significant and complex claim to vary award
wage rates with the AIRC on 18 July 1996, and a preliminary hearing was
convened for 7 August 1996.
The AIRC commenced its hearings to determine the claim on October 1,
1996. The AIRC has set a timetable in which it is expected that the hearing
of the merits of the case might be concluded by March 1997. Written submissions
from the parties were to be lodged in November 1996, and submissions from
the public by 20 November. Hearings were conducted in December (prior
to Christmas) and recommenced on 21 January 1997.
The claim contains three objectives:
- the phased increase of a minimum wage to $12.00 per hour for ordinary
hours of work (from about $9.20 currently);
- three staged safety net increases in weekly award rates of pay of
$20.00 each for workers who have not received any increases through
enterprise bargaining; and
- addressing issues such as hours of work, work redistribution and income
security.(12)
The claim targets rates of pay in minimum rates awards and seeks to set
these rates closer to the actual rates of pay received by workers. The
ACTU has proposed that any minimum rate increases be offset against any
higher payments being made through over-award payments including workplace
agreements. However, where a worker receiving over-award pay had only
accessed the three safety net adjustments available since 1991, an increase
of $20.00 is claimed.(13)
The claim also seeks to maintain pay relativities of workers within and
across industries, set in accordance with the skills and qualifications
of workers, and requires additional protections for casual and part-time
employees. It is intended that the claim will be progressed in three
stages over the period 1997-1999.(14)
Stage 1
- An immediate increase for low paid workers to ensure they receive
at least $10.00 per hour for ordinary time work, or $380.00 for an ordinary
38 hour week. The current weekly base rate of $349.00 applying to the
entry level classification (C14) in the Metal Industry Award would need
to be increased by $31.00, or 8.75 per cent, to achieve this.
- A minimum $20.00 per week wage increase for workers who have not had
an increase under enterprise bargaining.
- The relativities already set out in minimum rates awards (including
those for juniors and trainees) would be maintained.
Stage 2
In a further application the ACTU intends to seek:
- A further increase to a minimum $11.00 per hour or $418 per 38 hour
week for work during ordinary hours.
- A further minimum $20.00 per week for workers who have not received
an increase under enterprise bargaining.
- Additional protections for 'precarious employees'-those called upon
to work occasional hours and few hours per week; and to provide to employers
and employees an incentive to achieve more certain and higher weekly
incomes.
This part of the claim seeks compensation for changes which have taken
place in the labour market, such as compositional changes in occupations
and industry as well as the mode of employment (i.e. the switch from full
time employment to casual and contract labour) and hours worked.
Stage 3
- A further increase to a minimum of $12.00 per hour or $456 per 38
hour week for work during ordinary hours.
- A further minimum $20.00 per week for workers who have not received
an increase under enterprise bargaining, designed to ensure that those
workers who depend on awards do not fall behind.
- Enterprises should be able to consider a variety of work sharing and
voluntary additional leave options. These options could include a reduction
in standard hours of work.
Discriminatory Practices
The claim also raises the question of discrimination in employment. The
ACTU is concerned that award workers could be discriminated against vis-a-vis
non-union employees. It therefore relies on the decision in the Weipa
case which found against the practice of treating award workers and
others differently in respect of pay and conditions. The ACTU is also
concerned about discrimination between full-time and part-time employees
(and those with family responsibilities).(15) It will seek Commission
endorsement that there be no discrimination against part-time workers.
The growth of 'precarious employment' (irregular casual and part-time
work) and the increasing pressure towards longer hours for full-time workers
are emerging features of the Australian labour market.
The Federal Government
The Federal Government opposes the claim, but has proposed three pay
rounds of $8.00 each over 1997-1999 for those earning below Average Weekly
Ordinary Time Earnings (AWOTE-about $680 per week for a 'person') and
who have not received increases under enterprise bargaining. It also argues
that these rises would provide a 'trifecta' to low-paid workers: a wage
increase, low inflation and reduced home interest rates.(16)
It has argued that any living wage increase be absorbed into over-award
pay. In its submission made jointly with the States (ex New South Wales,
which supports the ACTU claim), the Government claims that its proposal
would be limited to 18 per cent of the workforce; in other words, the
bulk of the workforce receives some form of over-award pay whether this
arrangement be informal, or in the form of a workplace agreement, or in
the form of a paid rates award. The Government has conceded that limiting
any safety net increases to those on AWOTE or less would compress relativities,
but argues that relativities should not be determined by the AIRC in awards;
rather, classifications and rates should be determined by enterprises.
It also proposes that paid rate awards be broken into a minimum rate and
a notional over-award rate, with any safety net increase being absorbed
into the over-award component.(17)
As well, the Government has pointed to the role of government transfer
payments in supplementing the living standards of low income people, referring
to statistics showing that direct cash transfers were worth an average
of $160 to wage and salary earners in the lowest quintile of earnings
and the average value of non-cash benefits ranged from $147 for a couple
with one child to $237 for a sole parent with two children, with direct
payments targeted to low income families.(18)
Australian Chamber of Commerce and Industry (ACCI)
The peak employer body opposes the claim but as a fall-back position
agrees with the Government that any rises should be absorbed in over-award
pay. It prefers that any increase be less than $8.00 and it wants a lower
cap than AWOTE. Thus, it suggests a $5 weekly allowance for those earning
less than $380. The ACCI raised concerns that any increases granted to
the low paid will 'flow' to higher paid groups as such groups seek to
restore their pay differentials. (19)
The ACCI also argues that the full claim, if granted, would most likely
apply to workers in the retail and hospitality industries harming the
future employment potential of these sectors. The ACCI also doubted official
figures on Australia's recent high economic growth rate, pointing instead
to declining profitability and a high number of business bankruptcies.
Business Council of Australia (BCA)
The Business Council of Australia supports the Government on the point
of classifications and pay rates being determined by enterprises and not
through awards. It claims that the application is actually a general wage
rise and that this is at odds with the intent of the new legislation which
is that workplace bargaining is to be the main vehicle for wage setting
with awards forming only a safety net. The BCA proposes a single minimum
wage, set by the AIRC and reviewed periodically, although such reviews
may not need to be frequent in a low inflation environment.(20) Such a
proposal has significant implications for both awards and agreements,
in that it fundamentally challenges classifications and skill levels currently
incorporated in awards as well as disturbing the operation of the 'no
disadvantage' test.(21)
Australian Chamber of Manufacturers-Metal Trades Industry Association
(ACM-MTIA)
The Australian Chamber of Manufacturers and the Metal Trades Industry
Association offered a different view from the BCA on award classifications.
They stated that career paths developed in a majority of awards since
1989 have operated successfully. They support 3 rounds of $8.00 while
acknowledging that increases will compress wage relativities. They have
called on the AIRC to mount a test case on how to strike a balance between
having regard to the interests of the low paid, as required by the legislation,
and maintaining award classification structures which underpin skill-related
career paths.(22)
National Farmers Federation (NFF)
The National Farmers Federation is concerned that rural labour costs
would increase by 37 per cent if the full ACTU claim was accepted. It
argued that the AIRC should refuse to grant any award increases at this
time. According to the NFF the claim, if granted, could reduce agricultural
output by 3.3 per cent and reduce rural employment by 90 000 jobs.(23)
Australian Labor Party (ALP)
In its submission to the review of Wage Fixing Principles, the Australian
Labor Party ratified its support for the first instalment of rises that
the Accord Mark 8 was due to provide low paid workers. For this group,
the former Accord outlined wage increases of between $11.00 and $14.00
(with a lower band to apply to award rates). The Opposition supports a
$14.00 increase for workers who have not received increases through enterprise
bargaining and also supports a review of minimum rates to ensure that
award rates remain a safety net. The ALP argues that the $14.00 should
not be absorbed into pre-existing over-award payments. It also considers
that the AIRC should include in any wage principles reference to part-time
employment, but part-time employees should not be discriminated against
in terms of over-award pay, superannuation or other employment benefits.
(24)
Australian Democrats
The Australian Democrats have also made a submission to the AIRC. They
argue that the award system is broader than providing a safety net:
Awards should be modernised and simplified, but not at the expense of
maintenance of up-to-date living standards reflecting labour market conditions...
Serious questions would arise as to whether the award system was being
maintained (if award rates were not adjusted adequately).(25)
They also argue that there is a strong case for a significant increase
in award rates, and this increase should not be made conditional on progress
toward enterprise bargaining. The submission also notes the significant
number of non-unionised employees in small business who will continue
to rely on awards as the primary determinant of their employment conditions.
Australian Council of Trade Unions (ACTU)
The submission of the Australian Council of Trade Unions claims that
any pay rises granted can be contained so that wages growth will not accelerate.
The ACTU has proposed that new clauses be inserted into awards providing
for the living wage increases to be offset against over-award payments
and wage rises granted under enterprise bargaining. The ACTU also proposes
that unions give the appropriate commitments to the AIRC. (26)
The ACTU has submitted that the profit share in the economy reached an
'all time high' of 16.6 per cent in 1995-96, while the wages share fell
to 57.6 per cent, and therefore there are grounds for returning a higher
share of national output to wages.(27) The ACTU has pointed to provisions
of the Government-Australian Democrat agreement on the Workplace Relations
Act which require the AIRC to maintain a safety net of fair minimum
wages and conditions and to have regard to the needs of the low paid when
adjusting this safety net. Note that the Government's advocate disputed
such an interpretation, arguing that the new legislation removed a previous
provision requiring awards to be maintained as 'secure and relevant',
and that the current emphasis on a simplified award safety net was in
no way a 'rival or alternative' to agreements.(28)
The ACTU has provided evidence (through affidavits from employees such
as labourers, machinists and cleaners) which claims that their current
award pay does not allow them to maintain a reasonable standard of living.(29)
The ACTU maintains that there would be no job losses as the first
stage of the claim would only add 1.3-1.9 per cent to average wages.(30)
Productivity has improved by more than 16 per cent over the past 6 years
according to statistics submitted by the ACTU.
The Government considers that the first stage of the claim may
increase unemployment by 0.75 per cent and increase unemployment by 2
per cent for all three stages. It contends that, if the claim is granted,
by the year 2000 employment could thus be 400 000 less than if the claim
was not pursued (although unemployment will not rise by this number due
to a fall in the participation rate). It also argues that the claim will
increase wages growth by 2 per cent.(31) By contrast, the Government has
costed its proposed increase ($8.00) and assumes that this will increase
AWOTE by 0.21 percentage points.(32)
The Reserve Bank of Australia (RBA) independently argues that
adoption of the claim would add a gross 2 per cent to wages costs, but
allowing for award movements already contributing to wages growth the
net impact would be less: 'The bank estimates that the claim would add
a further 1.6 percentage points to current annual growth in AWOTE'.(33)
The RBA based its calculation on an estimate that 20 per cent of workers
receive only award pay, and thus would receive all components of the claim
assuming it was successful.
The RBA's estimates thus appear to correlate more closely with the ACTU's
figure and are below that of the Government. However the RBA warns that
the full impact could be higher than 1.6 per cent if flow-on took place
and it fears that the direct effect of the claim could take aggregate
wage growth to over 5 per cent. It states that this would set the condition
for interest rates to be increased.
The RBA would prefer AWOTE to increase by no more than 4-5 per cent to
lock in low inflation. In its November 1996 Bulletin, the
Reserve noted that the economy-wide measure of AWOTE increased by 3.5
per cent in the 12 months to September, and claimed that if such results
were sustained, an inflation rate of 2-3 per cent could be maintained.
As it stated:
Given this (the plateau wages growth through enterprise bargaining) whilever
those workers on the award stream are receiving the sorts of modest increases
of recent years of an annual $8.00 a week increase, the aggregate outcome
seems likely to remain consistent with the 2 to 3 per cent inflation objective.(34)
Because of the growing divergence between award rate movements and enterprise
bargaining outcomes, the Reserve Bank finds it necessary to tabulate movements
in award rates of pay, average weekly ordinary time earnings and annualised
pay increases won through enterprise agreements since the early 1990s.
It uses data supplied from the Department of Industrial Relations, the
Australian Bureau of Statistics and its own estimates. These trends can
be found in the adjacent graph.
The ACCI claimed that granting the ACTU claim would add 6.1 per
cent to wage costs.(35)
The ALP claims its support for a wage increase of $14.00 will
increase wage costs by only 0.53 per cent.(36)
Given that the claim broaches more than one round, the outcome is not
easy to predict; the claim essentially sets a framework of issues to be
pursued over a number of years. Nevertheless it is tempting to postulate
an outcome to the claim. Professor Sloan canvasses the following scenario:
the AIRC adjusts award rates by $8.00, or slightly more, to apply to workers
who have not received an increase through enterprise bargaining. She notes
that an object of the new Act is to 'establish and maintain an effective
framework for protecting wages and conditions through awards', and this
object may assist the AIRC in reaching such a decision. As well, the AIRC
may determine a revised set of wage fixing principles. Professor Sloan
observes that those wage fixing principles (basically shaped in 1994)
have worked well by limiting 'quite severely any pay rises that could
be obtained through variations to awards and have shifted the focus to
pay rises based on enterprise bargaining'.(37)
It would be fair to say that the scenario portrayed by Professor Sloan
is a 'ballpark' outcome which most industrial commentators would expect,
mainly because no adjustment will mean a real fall in income for those
on low award rates and real economic growth has been sufficient to justify
some increase.(38) However, one will need to wait until March or April
to see if this outcome materialises, and indeed what response unions might
make. Also of interest will be any approach taken to process the remainder
of the ACTU's claim.
- 'We're not extravagant people, battlers tell wage bench', Australian
Financial Review, 9 December 1996.
- Australian Industrial Relations Commission, Third Safety Net Adjustment
and Section 150A Review, Print M5600, 9 October 1995.
- Award provisions will, over the next 18 months, be reduced to comply
with the 20 or so allowable award matters as stipulated under s. 89A
of the Workplace Relations Act 1996. However, award pay rates
and classifications are included in the 20 matters to be retained.
- 'RBA warns on wages', Australian Financial Review, 18 December
1996.
- Department of Industrial Relations, Enterprise Bargaining in Australia,
1995 Annual Report, AGPS, 1996: 106.
- Commonwealth Court of Conciliation and Arbitration, volume 2 of Commonwealth
Arbitration Reports at page 1 and following.
- Deery, S. and Plowman, D., Australian Industrial Relations,
McGraw-Hill, 1982: 286-287.
- ibid.: 288.
- Hutson, J., Six Wage Concepts, Amalgamated Engineering
Union, 1971: 35.
- 'Kelty launches bid to reduce hours', Australian, 19
July 1996. There, the ACTU Secretary, Mr Kelty, in an address to a conference
is reported to have said that the union movement is engaged in an ideological
battle with the Federal Government to preserve the relevancy of the
union movement:
If you dont have a minimum wages system and you dont have effective
unions, then the workers on the bottom will get poorer, the rich will
get richer you weaken an arbitral system, you weaken union power,
then you destroy the fabric of our community, you destroy the protection
you give to the ordinary men and women of our society.
- ibid.
- ACTU, ACTU Living Wage Case Submission, 1996.
- Joint Governments Submission: 94.
- ACTU, ACTU Living Wage Case Submission Section A, 1996:
1-3.
- AIRC, Print M7148, 21 November 1996 and Print M8600,
23 January 1996.
- 'Howard's wage push, proposed safety net increase for low-paid', Australian
Financial Review, 18 November 1996.
- 'Business proposes $5 rise for low paid', Australian Financial
Review, 28 November 1996. Paid rate awards are often regarded
by employers and the Government as incorporating an 'over-award' component
in the (higher) pay rates as compared to the more common minimum rate
awards. Workplace bargaining may appear less attractive to workers on
paid rates since their award already contains, in effect, the fruits
of workplace bargaining. Paid rates awards also have caused problems
for the AIRC, as is noted in its wage fixing principles of 1994.
- 'Claim for living wage flawed: Government', Australian Financial
Review, 20 December 1996.
- 'IRC checks spectre of wage rises', Australian, 13 December
1996.
- 'Just set a single minimum wage, says business', Australian Financial
Review, 2 December 1996.
- As noted in the introduction, the Workplace Relations Act retains
the 'no disadvantage' test of the previous legislation. If it were to
be accepted, the BCA proposal would mean that an award which specifies
a range of classifications and a range of pay rates, say up to $650
per week, would be replaced by one minimum rate at probably less than
$400 per week. The AIRC/Employment Advocate would not be able to refuse
to approve any agreement which replaced the $650 rate with say a $550
rate (ceteris paribus) since this new rate would be higher than the
universal minimum.
- 'Employers split on relativities', Australian Financial Review,
19 December 1996.
- 'Farmers fear cost hit over ACTU's living wage claim', Australian
Financial Review, 3 December 1996.
- Bob McMullan MP, 'Federal Opposition intervenes in National Wage Case',
Media Release, 5 December 1996.
- 'Award system should stay: Democrats', Australian Financial Review,
16 December 1996.
- 'ACTU targets fears of wage flow-ons', Australian Financial Review,
7 November 1996.
- 'Time to switch more cash into wages: ACTU', Australian Financial
Review, 5 December 1996.
- 'Claim for living wage flawed: Government', Australian Financial
Review, 20 December 1996.
- 'We're not extravagant people, battlers tell wage bench', Australian
Financial Review, 9 December 1996.
- 'ACTU claim to add '1 pc or less' to wages bill', Australian Financial
Review, 11 December 1996.
- 'Claim for living wage flawed: Government', Australian Financial
Review, 20 December 1996.
- Joint Governments Submission: 155.
- 'Pay bid threat to rate cuts: Reserve', Australian, 18
December 1996.
- Reserve Bank of Australia, Bulletin, December 1996.
- 'RBA warns on wages', Australian Financial Review, 18
December 1996.
- McMullan, op. cit.
- 'Something to bargain on', Australian, 16 January 1997.
- See for example 'Industrial muscle speaks loudest in wage claims',
Australian Financial Review, 30 January 1997, which doubts
that the ACTU claim will be delivered entirely.
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