ACTU Submission Annual Wage Review March 2016

Transcription

1 ACTU Submission Annual Wage Review March 2016

2 TABLE OF CONTENTS Introduction... 3 Our claim... 5 The form of the increase in minimum wages...5 The timing of the increase in minimum wages...6 The uniformity of the increase in minimum wages...6 An increase that takes into account all the relevant factors...6 What do minimum wages do?... 9 International evidence...10 Who relies on minimum wages in Australia? Sources and definitions...18 How many people rely on minimum wages in Australia?...19 Overview of the minimum wage workforce...20 Industry...21 Occupation Employer size...26 Classification and earnings...26 Why has award reliance risen? The state of the Australian economy Economic growth...33 International comparison of economic growth...33 Growth by industry...34 Consumer spending and retail trade...36 Productivity growth...39 International comparisons of productivity growth...44 Unit labour costs and the labour share of income...46 Profits...49 Business bankruptcy rates...51 Business entry and exit...51 Inflation...54 Wages...54 The state of the labour market Employment and unemployment...58 Participation in the labour force and the effect of ageing...60 The youth labour market...62 Employment by industry...66 Regional dispersion of labour force conditions...69 The economic outlook The growth outlook...73 The outlook for the labour market...75 Relative living standards and the needs of the low paid Reversing the decline in relative living standards...78 Relative earnings in the more award-reliant industries...82 Australia s minimum wage in international context Minimum wages and inequality The needs of the low paid...96 ACTU Submission to the Annual Wage Review Page 1

3 Securing a fair share of productivity growth...99 The relevance of taxes and transfers The effect of taxes and transfers on living standards The effect of the cost of working on living standards Equal remuneration for men and women workers Other matters Juniors, apprentices and trainees Employees with disability Casual loading Piece rates References ACTU Submission to the Annual Wage Review Page 2

4 INTRODUCTION 1. The ACTU asks the Fair Work Commission Expert Panel ( the Panel ) to increase the National Minimum Wage ( NMW ) and all award minimum wages up to and including the C10 tradespersons rate by $30 per week. We submit that award rates above the C10 rate should be increased by 3.9%. 2. The Australian economy has grown 3.0% over 2015, exceeding forecast expectations. Unemployment has declined slightly, also better than forecast. Inflation is also below expectations. The rate of business bankruptcy is lower than it has been in the twelve years since the series began. Wages growth continues to be very slow. There is a better than anticipated macroeconomic environment which justifies our claim for an appropriate increase in the minimum wage, for the Panel to deliver a modest increase in the relative living standards of the low paid, and for the economy to absorb and benefit from such an increase. Whatever eventuates, low paid workers deserve this raise now. If it is granted it will not have adverse consequences, but rather is likely to contribute to improvement in the economy. 3. The gap between the living standards of low-paid workers and workers on average wages has stopped growing over the past two and a half years, but this is due to the stall in growth in average wages over that period. Previously the gap had widened almost every year for decades, through boom times and recession, and under each of the three institutions that has had responsibility for adjusting minimum wages. 4. The NMW 1 as a percentage of average full-time earnings (AWOTE) is still below the level it was at August 2010 after the GFC, more than five years ago. Under these circumstances, improving the relative value of the NMW is necessary but not sufficient, in order to maintain a fair safety net. 5. Awarding the increase we seek in this Review would not only prevent further erosion in the relative living standards of the low paid, but would advance the vital task of restoring ground that has been lost. We project that, if awarded in full, the increase we seek would result in the NMW being restored to around 45.8% of average weekly full-time earnings, up from 43.8%. 2 This would be a modest boost from its current level, but still below its level at Feb 2009 (46.3%) in the context of almost zero current growth in real wages. We are calling on the Panel to deliver a modest increase in the relative living standards of the low paid. 6. Raising the minimum wage will also contribute to a reduction in inequality and promote growth in the economy. This process is being increasingly recognised in a mounting literature that 1 Or the equivalent C14 award rate of pay. 2 Projection based on the assumption that average weekly ordinary time earnings (AWOTE) of full-time adults will increase by 2.8% over the year to November 2015, as it did in the year to November This is not a forecast, merely a projection assumption. ACTU Submission to the Annual Wage Review Page 3

5 examines the relationship between inequality and economic growth. An increase in the minimum wage is called upon in order to alleviate inequality and to promote economic growth. 7. Our claim is affordable and appropriate, having regard to all the social and economic criteria the Panel must take into account. This submission addresses each of these criteria in detail. 8. A fair safety net of minimum wages is necessary to protect the living standards of Australian workers and to promote economic growth in Australia. ACTU Submission to the Annual Wage Review Page 4

6 OUR CLAIM 9. We submit that the Panel should increase the National Minimum Wage for full-time adults by $30 per week, to $ per week or $18.08 per hour. Award minimum wages up to and including the benchmark C10 tradespersons award rate (and its equivalent rates) should also be increased by $30 per week. Award rates above the C10 rate should be increased by 3.9%. 10. The minimum rates of pay we propose for each classification level in the Manufacturing and Associated Industries and Occupations Award 2010 are set out in Table 1. Award classification Table 1: ACTU s proposed minimum rates of pay Current rates Weekly Hourly Weekly Hourly Proposed rates % increase Weekly $ increase Hourly $ increase NMW/C14 $ $17.29 $ $ $30.00 $0.79 C13 $ $17.79 $ $ $30.00 $0.79 C12 $ $18.47 $ $ $30.00 $0.79 C11 $ $19.10 $ $ $30.00 $0.79 C10 $ $20.13 $ $ $30.00 $0.79 C9 $ $20.76 $ $ $30.94 $0.81 C8 $ $21.39 $ $ $31.88 $0.84 C7 $ $21.96 $ $ $32.73 $0.86 C6 $ $23.08 $ $ $34.39 $0.90 C5 $ $23.55 $ $ $35.09 $0.92 C4 $ $24.18 $ $ $36.04 $0.95 C3 $ $24.44 $1, $ $37.92 $2.00 C2(a) $ $26.08 $1, $ $38.87 $1.02 C2(b) $1, $27.22 $1, $ $40.57 $1.07 The form of the increase in minimum wages 11. Since 2011, the Panel has awarded percentage increases in the NMW and award minimum wages at each Review. The considerations that have led the Panel to adopt percentage increases are important. Award relativities were compressed quite substantially in the 1990s and 2000s. Percentage increases have prevented further erosion in these relativities, by maintaining them at their July 2010 levels. 12. However, we believe strongly that a hybrid increase best balances the various considerations that the Panel must take into account. It would ensure that the largest wage rises, in percentage terms, go to the lowest paid workers. At the same time, it would prevent any further erosion of the skill-based wage relativities above the C10 tradespersons rate. ACTU Submission to the Annual Wage Review Page 5

7 The timing of the increase in minimum wages 13. A national minimum wage order made in an Annual Wage Review comes into operation on 1 July in the next financial year, unless there are exceptional circumstances. 3 Similarly, a determination varying modern award minimum wages that is made in an annual wage review comes into operation on 1 July unless there are exceptional circumstances There are no exceptional circumstances that would warrant a delay in the Panel s determination coming into operation. The NMW and modern award minimum wages should be increased with effect from 1 July. The uniformity of the increase in minimum wages 15. We submit that all award rates of pay equal to or less than the C10 tradespersons rate in the Manufacturing and Associated Industries and Occupations Award 2010 should be increased by $30 per week, while all higher rates should rise by 3.9%. There should be no variation in the increase across industries, occupations, or regions. We agree with the Panel in its Review when it endorsed the observation that the legislative framework reveals a preference for consistent variation determinations across all modern awards [t]he notion of a fair safety net of minimum wages embodies the concepts of uniformity and consistency of treatment, and that the award-by-award approach to minimum wage fixation, based on sectoral considerations, advocated by some parties in these proceedings is inimical to the safety net nature of modern award minimum wages Just as the increase should be uniform across awards, so too should it be consistent across geographical regions. There is some variation in economic and labour market conditions across the country, but nothing that would warrant awarding differential increases or dates of operation across regions. As demonstrated in this submission, the variation in labour market conditions across regions of the country is no more than usual. An increase that takes into account all the relevant factors 17. The ACTU s submission to this year s Review, as in previous Reviews, addresses all the statutory considerations to which the Panel must give consideration. 18. Our claim in this Review is appropriate, taking into account all the factors the Panel must consider. Crucially, awarding our claim will help to improve the relative living standards of workers reliant on minimum wages. It will help the low paid to meet their needs. Given the fact that women are disproportionately represented among the ranks of low-paid workers, our claim will 3 Fair Work Act 2009 (Cth), s Fair Work Act 2009 (Cth), s FWC 2015 Annual Wage Review [12],[13] ACTU Submission to the Annual Wage Review Page 6

8 help to reduce the gender pay gap. It will help to promote social inclusion through workforce participation, by ensuring that work pays. 19. Our claim is also consistent with the economic factors that the Panel must take into account. It will encourage growth in the economy. 20. This submission outlines a range of pertinent facts about the state of the Australian economy that support granting our claim in this Review, including the following: a. The Australian economy grew by 3.0% over the year 2015, which was faster than many OECD countries and faster than forecast; b. Output grew in each of the four most award-reliant industries in Three of the most award reliant industries grew faster than GDP, including 4.6% in Health care and social assistance and 3.7% in Retail trade; c. Consumer spending grew two percentage points faster than households incomes in 2015, which should assist those industries that rely on consumer spending; d. The volume of retail sales grew at a solid pace in 2015, including department stores at 4.6%; e. Labour productivity continues to grow strongly, considerably exceeding the OECD average consistently; f. Labour productivity rose in two of the more award reliant areas at almost the same rate as the whole economy. These are the labour intensive areas of Health care and social assistance and Accommodation and food services where labour productivity growth is normally expected to be slower than for the total economy which includes capital intensive industry; g. Business bankruptcies have fallen to their lowest level in the post-gfc era. The entry rate for new businesses continued at the same rate The number of businesses grew second fastest in the award reliant industry of Health care and social assistance; h. Employment has grown unexpectedly rapidly over 2015, with around 294, 000 people added to the workforce: over 40% was in the award reliant area of Health Care and Social Assistance; i. The unemployment rate fell a little in the second half of 2015, better than forecast. It improved in all states in the second half of the year except Tasmania where it still fell over the year; j. Employment grew in the four most award-reliant industries, especially Health care and social assistance and Administrative and support services. It was still solid in Retail trade and ACTU Submission to the Annual Wage Review Page 7

9 Accommodation and food services. Overall there is no relationship between the level of award-reliance in an industry and the pace of employment growth; and k. The indicators of the labour market have exceeded those forecast for 2015 and We have formulated our claim based on all the social and economic factors which the Panel must take into account. We submit that it should be granted in full. ACTU Submission to the Annual Wage Review Page 8

10 WHAT DO MINIMUM WAGES DO? 22. This Chapter examines developments since the AWR 2015 in the findings from research on the effects of minimum wages, focussing on the effects on employment (other possible effects will be addressed elsewhere). In its last Decision the Panel remained of the view that modest and regular increases have a small or even zero impact on employment. 6 The view of the ACTU is that the increasing pile of literature on minimum wages since then in general further confirms that finding. The AWR 2015 also said There is legitimate disagreement about what constitutes a modest increase, and we accept that this is a factor supporting a lower increase in times when unemployment is relatively high. 7 But we find there is little evidence in the literature to support that even larger percentage increases than the NMW increases awarded in Australia have a negative consequence for employment. For instance, the wage increases addressed in the classic study by Card and Krueger and many other researchers are much greater in percentage terms than the minimum wage increases awarded in Australia, yet the elasticities are statistically insignificant, very small or positive, including for low income workers. 8 That is the percentage change in employment in response to a given percentage change in the minimum wage is zero, negative but very small, or positive, while seeking to take into account other factors that could influence employment. 23. The OECD reports the findings of a number of meta-analyses (studies of studies) showing that overall, the impact of minimum wage increases on employment tends to be small. 9 One feature across studies is that of heterogeneity. For instance the mechanism of setting and the ratio of youth to adult wages varies enormously. 24. The Australian system is unique in that it fixes the minimum wage plus a host of other higher minimum wage levels across occupations and industries more comprehensively than anywhere else, on a national basis. Yet the empirical findings for the impact of the minimum wage on employment in Australia are basically similar to those found for other countries, across a range of statistical methodologies. If minimum wage increases are employment reducing as the standard neoclassical competitive model anticipates, the effect ought to be reinforced through raising the structure of NMW and modern awards wages in Australia. Yet this is not observed. We maintain that even greater increases would not lead to falls in employment, based on the current literature. 6 FWC 2015 Annual Wage Review [52] 7 FWC 2015 Annual Wage Review [52] 8 Card and Krueger, Preface to Twentieth Anniversary edition (2016) 9 OECD 2015a OECD Employment Outlook, p46 ACTU Submission to the Annual Wage Review Page 9

11 25. Here we review the international and Australian evidence which has presented itself since the last AWR, Overall, raising the minimum wage in Australia is not found to be detrimental to the level of employment, or to bear any particular relationship with unemployment. International evidence 26. The international literature continues to add to the evidence which supports little or no negative effect on employment of the introduction of or actual increases in minimum wages, including for low waged workers and youth. We view this evidence as relevant for the minimum wage in Australia, notwithstanding its unique system. 27. We observe that the lack of international evidence of a negative relationship between minimum wage increases and employment is sustained for much larger percentage wage increases than those awarded in Australia. For instance in the UK NMW increases range from 4.92% in 2011 up to 5.13% in 2015 for adults. The USA 28. The number of studies of the impact of the minimum wage in the US has particularly accelerated. The preface to the Twentieth-Anniversary Edition (2016) of the study by David Card and Alan Krueger Myth and Measurement The New Economics of the Minimum Wage (1995), now recognised as classic work, provides a current update. Its review of research since the book was first published confirms that the basic pattern of findings has been largely similar for the effect of the minimum wage on employment and the distribution of earnings. Moreover surveys of members of the American Economic Association have found that economists are significantly less confident that a minimum wage increase adversely affects employment prospects for lowskilled workers in the 2000s than was the case in the 1970s, which has been attributed to their work. 10 They argue that the increased take up of minimum wages in policy across countries is testimony to the acceptance of this evidence. They argue that because minimum wages shift income towards lower income households with a relatively high marginal propensity to consume, then they can increase aggregate demand and raise economic activity The work of Card and Krueger has been opposed over the years by that of Neumark and Wascher, most recently in Neumark et al (2014). Neumark and Wascher used data collected by themselves for US national panels of states and obtain findings directly opposed to Card and Krueger which used quasi experiments (comparing adjacent states, with and without minimum wages in the fast food industry). Criticisms have been levelled at the statistical inferences on both 10 Card and Krueger 2016 pxii 11 Card and Krueger 2016 pxxii ACTU Submission to the Annual Wage Review Page 10

12 sides, relating to the inapplicability of the assumptions about the properties of the standard errors upon which the test statistics rely. Card and Krueger s work has been criticised for having too local a focus to be robustly generalized, in particular that focussing on adjacent states biasses the employment effects toward zero. 12 Neumark and Wascher s specifications have been criticised for a lack of control variables resulting in the effects of other factors being falsely attributed to the minimum wage Belman and Wolfson (2014b) also conduct a meta-analysis of the studies of the impact of minimum wages on employment and hours for the US. It finds there is a negative and generally statistically insignificant employment effect which is between small and vanishingly small and this includes for youth and the Food and Drink sector In the most recent work of significance, Dube et al (2014) sought to take account of spatial and time varying heterogeneity that was argued by Neumark and Wascher to bias the results for employment changes between adjacent states towards zero when minimum wages were introduced in one of them. Neumark and Wascher s work had criticized the work of Dube et al as well as that Card and Krueger. When flows across state borders are factored in, even teen and restaurant employment does not fall due to a minimum wage increase, but labour turnover falls substantially. 15 Allegretto, Dube, Reich and Zipper (2015) used larger and longer panels to show that teen and other employment does not fall with minimum wage increases, confirming the findings of other studies including those using other methodologies such as Totty (2014). The UK 32. The UK adult NMW increases range from 4.92% in 2011 up to 5.13% in 2015, consistently higher than those for Australia. However caution is required in interpretation of the UK findings due to institutional differences in which only a single adult minimum wage rate is set, in contrast with the Australian award structure. 33. The UK Low Pay Commission Report 2015 into the National Minimum Wage found that the research they had commissioned to inform its decisions, more than 140 projects, has generally shown that the NMW has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy 16. It noted that since the introduction of the NMW in March 1999, through to September 2014, despite the GFC, the number employed (including self-employed) rose 13.9% and the number of employees rose 12 Neumark et al 2013, Neumark et al 2014, p22 13 Belman and Wolfson 2014a, p.4 14 Belman and Wolfson, 2014b, Chapter 4 15 Dube et al 2014, p28 16 UK LPC 2015, 10 ACTU Submission to the Annual Wage Review Page 11

13 10.9%. 17 It took the labour market less than five years to recover after the GFC during this period, indicating remarkable resilience compared with recoveries of at least eight years after the previous milder recessions of the 1980s and 1990s, when there had not been a minimum wage in place (2.123). Moreover the number of employees in low paying industries since September 1998 just prior to the introduction of the NMW increased 15.8%, faster than the 13.6% for the whole economy [2.127]. The findings for the impact of minimum wage increases on employment in their 2015 Report were similar to previous years. 34. De Linde Leonard, Stanley and Doucouliagos (2014) undertook a meta-analysis (a study of studies) of sixteen UK studies of the relationship between employment and the minimum wage, also cited in UK LPC 2015, It found an absence of publication bias (where there is a pattern of journals favouring particular findings) and no overall practically significant adverse employment effect, with the exception of the residential home care industry, and possibly retail Bewley and Wilkinson (2015) in research commissioned for the UK LPC 2015 analysed increases in the NMW in the UK in 2010 and the impact on job entry from unemployment and hours. It compared those earning up to 10% more than the NMW before and after the increase with those directly affected by the NMW increase, and across regions, using differences in differences estimations. It found some evidence that the minimum wage increase at the GFC recovery affected different groups of employees differently. Part time female employment was reduced in the main findings, but this was not robust to sensitivity tests (changing the model specification), while the employment of other groups generally was not affected or else improved. 36. Riley and Bondibene (2015) analysed the impact of the NMW on productivity in UK businesses using a differences in differences approach to comparing firms that generally paid the minimum wage (low-pay firms) compared with firms with workers not dependent on the minimum wage. It found that productivity in low pay firms was not associated with a reduction in employment Andy Haldane, Chief Economist of the Bank of England, said in a speech on 12 November 2015 that the number of people in earning less than a living wage in the UK had increased to 5.8 million and ought to shrink once the Living Wage is introduced UK LPC 2015, de Linde et al p Riley and Bondibene p Labour s Share, Speech given by Andrew G Haldane, Chief Economist, Bank of England,Trades Union Congress, London 12 November 2015, p.5. ACTU Submission to the Annual Wage Review Page 12

14 Australian Evidence 38. As widely recognised, the number of Australian studies focussing on minimum wages is limited. Previous AWRs have covered the earlier work extensively, which in general has found a weak impact of minimum wages on employment, mostly close to zero, with some findings somewhat more negative for employment amongst youth and low paid. 39. As previous submissions by the ACTU have pointed out, a uniform structure of a national minimum wage and modern award levels has prevailed across Australia making it more difficult to obtain regional counterfactuals in order to estimate the effects of an absence of a minimum wage given otherwise similar conditions (ACTU submission to AWR 2015, 210). Different median wages and hence wage bites across the states are likely to be largely a consequence of regional variations in industry structure which are difficult to disentangle from labour market and other factors. 40. Australian work relating to the minimum wage since the last AWR includes that of the Productivity Commission s Inquiry into the Workplace Relations Framework which reported in December 2015 [PC 2015]. It also includes that of the Australian Government in its submission to the AWR We first consider the evidence presented in PC 2015 as to the impact of the minimum wage. The Productivity Commission Inquiry into the Workplace Relations Framework 41. The Productivity Commission [PC] in its Inquiry into the Workplace Relations Framework released in December considered the impact of minimum wages extensively. 42. In terms of theory, the PC analysis of the labour market is basically premised on the standard Marshallian model of markets in which a wage floor raises costs to the firm. In that model if a minimum wage raises the wage above the level which prevails due to competitive bargaining between employer and worker, then unemployment will result, holding all else constant. The negative impact of the minimum wage on the firm s employment decision would be expected to be reflected in lower employment throughout the economy and higher unemployment, compared with the competitive market outcome. Raising minimum wages would be expected to further lower employment (and raise unemployment). 43. The PC presents the monopsony model of the labour market in order to explain why the negative relationship between minimum wages and employment is not well supported empirically, including for youth and low wage workers. In the monopsony argument for the minimum wage firms have market power in the labour market (not necessarily in the product market) over 21 PC 2015 Inquiry into the Workplace Relations Framework ACTU Submission to the Annual Wage Review Page 13

15 workers and this enables those firms to push wages down. Employment is restricted as workers are deterred from supplying labour. In this situation imposing a higher minimum wage could increase employment 22, as workers are attracted to the higher wages and the employment outcome moves towards the higher wage competitive solution. 44. However the monopsony model also produces the result that if the minimum wage is increased far enough, employment would be reduced. 23 That appears to be the analytical grounds for the widely put suggestion that moderate wage increases will not reduce employment, as there appears to be no empirical evidence to suggest how far the minimum wage can be raised in practice without reducing employment. The functional relationship generally estimated between the minimum wage increase and employment in the empirical work does not allow this to be strictly tested. That is it cannot be discerned whether the relationship between the minimum wage and employment for instance might be positive over small increase in the minimum wage and negative over a bigger increase. The market model faces issues both in the extent to which how much minimum wage increases affect wages as a cost to the firm and in turn the relationship between wages and the profitability of the firm, and the extent to which an increase in the minimum wage affects workers wages and in turn the extent to which wage rates are a decision factor in how much labour individuals supply. 45. In our view this standard market analysis cannot adequately evaluate the effects on incomes and spending of those who are paid the increased wages, and the impacts on profits, employment and income throughout the economy. This is a reason why the expected negative impacts of the minimum wage on employment are not found empirically, even for much greater percentage increases in the real minimum wage than those awarded in Australia, and over time. 46. The PC also argues a labour supply side case that a higher minimum wage could also improve worker productivity through improved motivation and effort, improving employment in low skilled areas, although effects could be industry specific The PC s review of the empirical findings in which it finds little or no negative impact of wage increase on employment is all the more convincing because it begins with a model in which the inherent expectation is of a negative impact on employment from raising the minimum wage. 48. The PC views the impacts on and risks posed for employment and earnings from raising the minimum wage as an empirical matter. 25 The PC s review of the literature on minimum wages and its own empirical analysis finds little or no evidence of negative employment effects from 22 PC 2015 pp1037-8, Box C1 23 OECD 2015a, p PC 2015 p PC 2015 p15 ACTU Submission to the Annual Wage Review Page 14

16 raising the minimum wage. It indicates that no prescription can be inferred as to the desired rates of increase of the minimum wage from the empirical analyses. 49. The PC indicates there would be greater scope for increasing the minimum wage if the skills of jobless people improved over a sustained period, or there was an increased demand for people in industries intensive in the use of minimum wage employees, such as retailing, aged care and hospitality. 26 This in fact is the case currently in those industry sectors in Australia in which are most dependent on minimum wage and award only. It also says that in improved economic circumstances, minimum wages could rise at a faster pace (PC p17). This also is consistent with current circumstances in the Australian economy which is sustaining a reasonable performance against widely held expectations (see the Chapter on The state of the Australian economy). 50. The PC 2015 highlights the range of findings, and the relatively few Australian studies of minimum wages and employment. It is apparent from Table C2 (PC p1044) and C4 (pp ) that the vast majority of findings are not statistically significant. While negative impacts are reported for minimum wage increases in the seven studies before 2007, a positive effect is found in the one study for 2007 and no effect in the two studies at PC 2015 recognises the minimum wage is just one of the many economic variables that can affect employment levels, and some of the others are more likely to have significant impacts (PC p183), and that of particular significance are aggregate demand and macroeconomic stability, and the education, skills and experience of the workforce. The effects of changes in minimum wages can be contingent on circumstances specific to them From the PC s survey in Appendix C of eleven Australian studies of the average wage and employment which use a range of regression methods, it confirms that real output is the main driver of employment over time. Its reading of the Australian empirical studies is that increases in Australia s minimum wages are likely to have caused some disemployment, but that the effects have not been major relative to other influences. Further, while the studies provide an indication of the likely direction of change, they provide neither definitive evidence nor clear guidance on the magnitude of any employment effects that would result from future changes in Australia s minimum wages The PC conducted its own analysis of the impact of minimum wage increases between 2008 and It used RED (Research and Evaluation) data from the Department of Employment, which covers all recipients of federal income support except Family Tax Benefits or childcare subsidies. 26 PC 2015 p17 27 PC 2015 p PC 2015 p194 ACTU Submission to the Annual Wage Review Page 15

17 It used a difference in differences approach for econometric estimation and a range of robustness tests which are intended to determine whether the relationships hold up under different assumptions. 54. The PC indicated the results of its study were inconclusive in parts, reflecting diverse positive and negative associations between employment and the minimum wage which were specific to the year. The results suggested that employment effects of minimum wage increases were felt more by those not in employment, while workers could find their hours reduced. But robustness concerns meant that the PC could draw only limited conclusions. The study did not apply to workers aged 15 to 20 years old who it was argued had to be removed from the sample, which already excluded those in households where no one received welfare payments. The PC recognised the limited capacity to control for shifts due to the record rise in the terms of trade, world economic downturn or a major stimulus package which affect the years between 2008 and Other Work 55. Wilkins and Wooden (2014) finds that the employment shares of the highest waged and highest skill levels have increased at the expense of the employment shares at the low end of wages and skills respectively (Wilkins and Wooden 2014 p.424). This is in contrast with both Europe and the USA which have had relatively strong employment growth at the bottom of the skills distribution. Relative to the top quintile of jobs, employment growth has tended to be weak along the entire skills distribution, although it grew less than half a percentage point in the fourth highest level, mainly driven by the increase in carers and aides (p424). Wooden and Wilkins find this can only be explained by the differences in the regulation of wages of low-paid workers, where many more Australian workers are dependent on the minimum wage than Europe, and the minimum wage is higher than the US or most European countries However we find an alternative explanation in that relatively sluggish multifactor productivity growth in Australia has not left a dividend to flow across the skill distribution. This is supported by Coelli and Borland (2015) which finds that technological change in Australia as elsewhere has placed pressure on earnings distribution. 31 Moreover, overall poor wages growth in Australia despite high labour productivity growth has been particularly adverse to workers at the bottom of the wage and skill distribution. We would argue it is the slow rate of growth in the real minimum wage relative to the average wage in Australia that has stalled the distribution of skills and wages toward the bottom. The lack of connection found between minimum wage increases and 29 PC 2015 p Wilkins and Wooden 2014 p Coelli and Borland 2015 ACTU Submission to the Annual Wage Review Page 16

18 employment across the literature supports that it is not different regulation of wages in Australia that has led to weakening at the bottom. ACTU Submission to the Annual Wage Review Page 17

19 WHO RELIES ON MINIMUM WAGES IN AUSTRALIA? 57. There are 1.86 million Australian workers, 18.8% of the workforce, who are on the National Minimum Wage or who are reliant on awards for their wages, according to the most recent data of May Most of those workers are women (57.5%) and most of them are adults (84.5%). These workers are all paid the lowest wage that they may legally be paid. They lack bargaining power, and rely on increases granted as part of the Annual Wage Review to improve their living standards. Sources and definitions 58. This chapter refers widely to the ABS Employee Earnings and Hours (EEH) survey, which is conducted every two years, with the last one conducted in May Results from this survey were released in January 2015 and have been covered extensively in the ACTU submission to the Annual Wage Review The ACTU also acquired unpublished data at finer ANZIC industry subdivisions and ANZSCO levels of occupation for that submission. The salient points will be summarised here, with some further discussion. 59. In the EEH survey, employees are classified according to the main method of setting their pay, award only, collective agreement, individual arrangement, or owner-managers of incorporated enterprises (OMIEs). They are award only if they are paid exactly at the rate specified in the award, and are not paid more than that rate of pay. 33 Workers paid above an award are classified to either the collective agreement or individual arrangement categories. 60. The ACTU understands that workers who are paid the National Minimum Wage (NMW) are classified as award only in the EEH survey. Awards are defined for the purposes of ABS surveys as legally enforceable determinations made by Federal or State industrial tribunals or authorities that set the terms of employment (pay and/or conditions) usually in a particular industry or occupation. 34 This includes Modern Awards and the National Minimum Wage Order. The EEH survey appears to classify both groups as award only. 61. In this submission, the ACTU uses the phrase award-reliant workers to refer to employees who are classified as award only in the EEH survey. Award-reliant, award only, minimum wage workers, and workers reliant on minimum wages are used interchangeably in this submission to mean workers paid exactly at an award rate or the NMW. Low paid workers is also intended to have the same meaning, except where it is clear that low paid refers to workers with earnings below a particular threshold, regardless of their pay-setting method. 32 ACTU 2015 Submission to Annual Wage Review , 27 March, pp ABS 2015,Employee Earnings and Hours, Australia, May 2014, Catalogue number ABS 2013, Labour Statistics: Concepts, Sources and Methods, 2013, Catalogue number ACTU Submission to the Annual Wage Review Page 18

20 62. The Fair Work Commission s Australian Workplace Relations Study (AWRS) provides a wealth of relevant and important information about low-paid workers and their employers. The AWRS findings sheds light on the population of workers who are paid above the relevant award rate, but whose pay is nevertheless set by some reference to the award rate. 35 The ABS data provides little insight on this group, as they re subsumed within the individual arrangements category. 63. In relation to award reliance, the ABS figures regarding award only workers are used rather than the AWRS figures. This is because the AWRS First Findings report makes it clear that the AWRS should not be a substitute for ABS catalogues that provide more robust estimates of the employer and employee populations in Australia primarily due to the significantly larger sample sizes and higher response rates that ABS estimates are based on. 36 The AWRS findings are a useful supplement to, rather than a replacement for, the ABS estimates. How many people rely on minimum wages in Australia? 64. There were employees paid exactly at an award rate in May 2014, representing 18.8% of all employees 37. There were 41.1% of employees paid according to a collective agreement and 36.6% paid according to an individual arrangement, with the remainder (3.4%) being owner-managers of incorporated enterprises (OMIEs). 65. For comparison, the AWRS First Findings report for 2014 data, based on employer reported data, estimates that 14.8% of employees were award reliant plus another 15.8% which were paid according to an unknown award-based arrangement. These unknown award based arrangements include an unknown proportion which are paid at the award, and others where the award is used as a guide / base for pay setting. The AWRS also asked employees how they believed their pay was set, and 22.4% reported having their pay set by an award The proportion of employees paid according to an award appears to have risen somewhat in recent years after falling during the previous decade, based on the EEH data. In 2000, around 23.2% of employees were award-reliant, falling throughout the 2000s to a low of 15.2% in Award reliance rose to 16.1% of employees in May 2012 and 18.8% in May 2014, an increase of 2.7 percentage points over the two year period. 67. The rise in award reliance over 2012 to 2014 came with a 0.9 percentage point fall in the proportion of employees on a collective agreement and a 1.8 percentage point fall in the proportion of employees paid according to an individual arrangement. 35 FWC AWRS 2015 First Findings Report 27 January 36 Pay Equity Unit 2015, First Findings Report: Consolidated content from online publication, Fair Work Commission, Melbourne, p ABS EEH Cat FWC First Findings Report Incidence of different methods of setting pay, Methods of setting pay, based on enterprises reporting using a particular wage setting practice for at least one employee. accessed 16 March ACTU Submission to the Annual Wage Review Page 19

21 68. Some important considerations regarding the increase in award reliance are examined in the chapter on Relative living standards and the needs of the low paid. Overview of the minimum wage workforce 69. Figure 1 shows the award only workforce by age and full-time/part-time status as at the most recent ABS data breakdown, May Figure 1: Employees by method of setting pay Source: ABS The average age of award-reliant workers is 35.7, a little younger than the average of 39.5 for all workers. Most award only workers are adults, with 84.5% of them aged 21 or above the equivalent figure for all employees is 92.3%. Award only employees are over represented in the age group under 25, after which the position is reversed until 65 years and over when they are equal. The under representation of award only in the 35 to 54 in particular is not only due to people rising into over award positions. It is also due to women with children being removed from employment, where women are disproportionately reliant on award only. ACTU Submission to the Annual Wage Review Page 20

22 Figure 2: Award only employees by occupational group May 2014 Share of total 30% Award only employees 25% All employees 20% 15% 10% 5% 0% 17 years and under 18 to 20 years 21 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over Source: ABS 6306 and ACTU calculations. 71. Compared to other workers, award only workers are: a) more likely to be female % of award only workers are female, compared to 48.9% of other workers; b) more likely to work part-time (59.2% vs 35.5%); c) more likely to be casual rather than permanent or fixed term (44.6% vs 16.2%); d) more likely to work in a small business (37.9% vs 19.7%), although a majority of award only workers are employed in businesses with more than 20 employees; 39 e) more likely to work in the private sector (90.5% vs 79%); and are f) more likely to have weekly cash earnings below $1000 (78.4% vs 42.2%). Industry 72. Nearly two-thirds of all award only workers (61.6%) were employed in four key industries at May 2014: Retail trade ( employed 17.2% of award only workers), Accommodation and food services (17%), Health care and social assistance (15.1%) and Administrative and support services (12.2%). 73. Seven out of eighteen industry divisions have more than 20% of employees who are award reliant. The industry with the highest level of award reliance at May 2014 is Accommodation and food services, in which 42.8% of employees are award only. This proportion is called the density of award only employees. There are six other industries in which the density of award only employees exceeded 20%. These are Retail trade, Rental hiring and real estate, Administrative and support services, Health care and social assistance, Arts and recreation, and Other services. This is shown in Table The all other workers figure for business size excludes owner-managers of incorporated enterprises. ACTU Submission to the Annual Wage Review Page 21

23 Industry Table 2: Award only employees by industry May 2014 Award only employees Total employees Density of award only employees in industry Industry's share of all award only employees Industry's share of total employment (Thousands) (Thousands) (Per cent) (Per cent) (Per cent) Mining % 0.1% 1.7% Manufacturing % 5.9% 7.1% Electricity, gas, water and waste services % 0.4% 1.2% Construction % 5.0% 6.9% Wholesale trade % 2.9% 4.5% Retail trade , % 17.2% 11.3% Accommodation and food services % 17.0% 7.5% Transport, postal and warehousing % 2.6% 4.4% Information media and telecommunications % 0.4% 1.6% Finance and insurance services % 1.1% 4.0% Rental, hiring and real estate services % 2.1% 1.8% Professional, scientific and technical services % 4.1% 7.9% Administrative and support services % 12.2% 6.2% Public administration and safety % 4.3% 6.3% Education and training % 2.6% 9.5% Health care and social assistance , % 15.1% 12.8% Arts and recreation services % 2.0% 1.7% Other services % 4.9% 3.7% All Industries 1, , % 100.0% 100.0% Source: ABS 6306 and ACTU calculations. 74. Seventy-one per cent of award reliant employees, 1.3 million, are concentrated in industries with award only densities of over 20%. These industries employ 45% of total employees. 75. Within the four industries that employ the largest proportions of award only employees, there is substantial variation in the extent of award reliance. For example, within the Health Care and Social Assistance industry, 50.9% of employees in the Social assistance services subdivision are award only, but only 4.7% of employees in Residential care services are award only. Within Administrative and support services, building cleaning, pest control and other support services has a particularly high award reliance at 60.2%, or employees ABS 6306, unpublished data. Density and proportion are ACTU calculations. ACTU Submission to the Annual Wage Review Page 22

24 Occupation 76. Table 3 shows the number and proportion of award only employees by broad occupational group. Around a third of community and personal service workers and labourers are award only, with a slightly smaller proportion of sales workers (29.7%) reliant on awards. Table 3: Award only employees by broad occupational group May 2014 Occupation Award only employees Total employees Density of award only employees in occupation Occupation's share of all award only employees Occupation's share of total employment (Thousands) (Thousands) (Per cent) (Per cent) (Per cent) Managers % 3.5% 9.2% Professionals , % 7.7% 20.9% Technicians and trades workers , % 13.8% 11.9% Community and personal service workers , % 21.2% 11.6% Clerical and administrative workers , % 11.2% 17.1% Sales workers , % 20.7% 13.1% Machinery operators and drivers % 5.5% 6.3% Labourers % 16.5% 9.9% All occupations 1, , % 100.0% 100.0% Source: ABS 6306 and ACTU calculations. 77. Just over one million employees or 58% of all award reliant are in three occupations, Community and personal service workers ( ), Sales workers ( ) and Labourers ( ). These are the occupations of 35% of total employees. 78. In order to ascertain more information about the types of jobs award reliant employees are in, for its submission to the AWR the ACTU acquired unpublished data from the EEH survey showing the number of award only workers by two-digit ANZSCO code, a much finer grained definition of occupation. 79. Hospitality workers and cleaners and laundry workers have the highest density of award-reliant employees, with over half of the employees in each of those occupations being paid by an award only. ACTU Submission to the Annual Wage Review Page 23

25 Figure 3: Density of award only employees in most award-reliant occupations Hospitality workers Cleaners and laundry workers Food trades workers Sales support workers Skilled animal and horticultural Other technicians and trades workers Food preparation assistants Sports and personal service workers Sales assistants and salespersons Construction trades workers Farm, forestry and garden workers Protective service workers Other labourers Carers and aides Health and welfare support workers Factory process workers Road and rail drivers Mobile plant operators Storepersons Clerical and office support workers 59.7% 55.2% 49.0% 41.9% 38.8% 34.3% 31.1% 30.9% 30.8% 30.0% 28.2% 27.8% 26.2% 23.7% 21.9% 21.6% 19.1% 19.0% 18.6% 18.0% 0% 20% 40% 60% Density of award-reliant workers Source ABS 6306 (unpublished data) and ACTU calculations. 80. Sales assistants and salespersons are only the ninth most award-reliant occupation, with 30.8% of employees in the occupation being paid by award only. However, the occupation is very large, with total employees. As a result, it employs more award-reliant employees ( ) than any other occupation, by some margin. The other occupations which have largest numbers of award reliant employees in order are Hospitality ( ) which has the highest proportion of award reliance, Cleaners and laundry workers ( ), second highest award reliance, Carers and aides ( ), fourteenth most award reliant, and Sales support workers (97 000), fourth most award reliant Table 4 shows the number and density of award-reliant employees for each 2-digit ANZSCO occupation in May 2014, as presented in the ACTU submission of the previous year. 41 ABS 6306 unpublished data, cited in ACTU 2015 Submission to Annual Wage Review , 27 March,pp ACTU Submission to the Annual Wage Review Page 24

26 Table 4: Award only employees by occupation (2-digit ANZSCO), May 2014 (most recent) Award-reliant employees Total employees Density of award-reliant workers Occupation's share of all award-reliant workers thousands thousands per cent per cent Managers % 3.5% Chief executives, general managers and legislators 0.9 * % 0.0% Farmers and farm managers * - - Specialist managers % 1.5% Hospitality, retail and service managers % 2.0% Professionals % 7.7% Arts and media professionals 1.9 * % 0.1% Business, human resource and marketing professionals % 1.0% Design, engineering, science and transport professionals % 0.6% Education professionals % 1.2% Health professionals % 3.6% ICT professionals 4.7 ** % 0.3% Legal, social and welfare professionals 17.2 * % 0.9% Technicians and Trades Workers % 13.8% Engineering, ICT and science technicians 19.9 * % 1.1% Automotive and engineering trades workers % 1.8% Construction trades workers % 2.9% Electrotechnology and telecommunications trades workers 25.5 * % 1.4% Food trades workers % 2.9% Skilled animal and horticultural workers 32.6 * % 1.8% Other technicians and trades workers % 2.0% Community and Personal Service Workers % 21.2% Health and welfare support workers % 1.6% Carers and aides % 5.8% Hospitality workers % 9.8% Protective service workers % 2.0% Sports and personal service workers % 1.9% Clerical and Administrative Workers % 11.2% Office managers and program administrators % 1.2% Personal assistants and secretaries % 0.6% General clerical workers % 3.7% Inquiry clerks and receptionists % 2.6% Numerical clerks % 1.2% Clerical and office support workers 14.0 * % 0.8% Other clerical and administrative workers % 1.1% Sales Workers % 20.7% Sales representatives and agents % 0.6% Sales assistants and salespersons % 14.8% Sales support workers 97.0 * % 5.2% Machinery Operators And Drivers % 5.5% Machine and stationary plant operators % 0.9% Mobile plant operators 19.3 * % 1.0% Road and rail drivers % 2.3% Storepersons % 1.2% Labourers % 16.5% Cleaners and laundry workers % 6.9% Construction and mining labourers % 0.9% Factory process workers % 2.3% Farm, forestry and garden workers 11.7 * % 0.6% Food preparation assistants % 2.6% Other labourers % 3.2% All occupations % 100.0% Source: ABS 6306, including unpublished data. The final two columns are ACTU calculations. * indicates a relative standard error between 25% and 50%; ** indicates a relative standard error greater than 50%. ACTU Submission to the Annual Wage Review Page 25

27 Employer size 82. Small businesses, those with fewer than 20 employees, employ award only workers. This is 37.9% of the workers reliant on awards. 83. Although award only employees are more likely than other employees to be employed in small businesses, a substantial proportion of them are employed in larger businesses. Nearly half (42.4%) of award-reliant workers are employed in businesses with 50 or more employees. Classification and earnings 84. In previous reviews we made use of unpublished ABS EEH data on the distribution of award only workers by hourly earnings to estimate the number of employees at each award classification level, most recently using unpublished data from the May 2014 EEH survey released in January We note that since then both the numbers of employees in all categories as well as the rates of pay may have changed. Hence inference since that survey is not possible. 85. We estimated that 43% of award only employees had hourly earnings at or below the C10 rate of pay in May 2014 in the previous ACTU submission. In our analysis, we deflated casual employees hourly earnings by a fifth to remove an assumed casual loading of 25%, consistent with our practice in previous years. 86. Our estimates of the number and proportion of award only workers in each award classification range as at May 2014 are shown in Table 5. Table 5: Estimate of the number of award only employees by classification (May 2014) Number of employees in range (thousands) Percentage of employees in range Classification level Award only perm/fixed term Award only casual Total award only Total award only Below NMW/C % At or above NMW/C14, below C % At or above C9, below C % At or above C5, incl. C2(b) % Over C2(b) % Source: ACTU calculations based on ABS 6306 (unpublished). The figures include juniors, apprentices, trainees, and people with disability. The classification levels are based on adult minimum wages. The earnings of casual have been deflated by a fifth to remove an assumed 25% casual loading. The At or above C5, incl. C2(b) earnings range includes workers with hourly earnings up to $1 above the C2(b) range. Over C2(b) is all those with hourly earnings more than a dollar higher than C2(b). ACTU Submission to the Annual Wage Review Page 26

28 87. Our estimate of the proportion of award only employees whose earnings are at or below C10 at May 2014 was a little lower than previous estimates. Our estimate for 2012 was 48.5%, and for 2010 it was 45%. However, given the imprecision of these estimates, we do not believe these differences should be given too much weight. Previous estimates of the proportion of awardreliant workers employed at or below the C10 rate, by the ACTU and others, have ranged widely Award only workers employed in small business have lower average hourly earnings. The average earnings of award-reliant workers rises with the size of the firm, from $22.10 per hour on average in firms with under 20 employees to $36.70 an hour on average in firm with over 1000 employees. 89. Figure 4 shows the distribution of award-only employees by earnings. The chart shows the percentage of award-only employees who are employed in 50c earnings ranges. The black line is a smoothed version of the earnings distribution. Figure 4: Distribution of earnings of award-only employees (May 2014) Per cent 7 NMW C10 C2(b) $0 $5 $10 $15 $20 $25 $30 $35 $40 Hourly earnings Source: ACTU analysis of ABS 6306 (unpublished). Casuals earnings deflated by a fifth. 42 ACTU 2015 Submission to Annual Wage Review , 27 March,pp.22 ACTU Submission to the Annual Wage Review Page 27

29 90. Figure 5 compares the (smoothed) earnings distribution in May 2012 with that in May The figures have not been adjusted for inflation. Figure 5: Distribution of earnings of award-only employees (May 2014 and May 2012) Per cent $0 $5 $10 $15 $20 $25 $30 $35 $40 Hourly earnings Source: ACTU analysis of ABS 6306 (unpublished). Casuals earnings deflated by a fifth. Smoothed. 91. Compared to countries with a single national minimum wage, Australia has a less pronounced spike in hourly earnings above the minimum. Nearly 5% of UK workers earn within 25p per hour of the UK NMW, whereas less than one percent earn within one dollar of the minimum wage in Australia. The effect of Australian minimum wages on the earnings distribution is much more diffuse. In the ACTU s view, this is a positive feature, not a drawback, of our system. Why has award reliance risen? 92. The reliance on the awards rose from 16.1% in the 2012 EEH survey to 18.1% of employees in the 2014 survey. The Panel is required to take into account the need to encourage collective bargaining. 43 The Panel has said we are not persuaded that the recent increase in award reliance is sufficient to support the contention that recent minimum wage increases have acted as a disincentive to collective bargaining Some parties in previous Reviews have suggested that awarding increases in minimum wages above inflation, or awarding percentage increases in award minimum wages, discourages 43 Fair Work Act 2009 (C th), s.134(1)(b) 44 FWC 2015 Annual Wage Review [56] ACTU Submission to the Annual Wage Review Page 28

30 collective bargaining. 45 We do not accept that that increases in the NMW above inflation, or percentage increases in NMW discourage collective bargaining. In Australia collective bargaining is likely to be a consequence of awarding pay increases. The awards can be taken as a signal that collective bargaining is warranted, by employees and employers. There is no straightforward effect on incentives related to the size of the increase awarded. Employees may take a larger increase as a signal that collective bargaining may be more worthwhile. A larger increase may encourage employers to bargain about the complex of conditions in the employment relationship. The reverse may be true about a smaller increase, although no symmetry can be assumed in relation to the incentives engendered by the size of increase. 94. There is no historical relationship evident between the level of award reliance following the previous increase awarded. 95. The measure of award reliance over time is subject to statistical uncertainty. 96. Award reliance is a consequence also of changing industry structure with new and changing areas of demand for industry output of goods and services. In any case there is a likely to be lag in fast growing areas between initial award reliance and the undertaking of collective bargaining. This is especially the case in new industries related to the digital economy and the increase in at home and casual employment at unsocial hours % of employees were paid according to a collective agreement in 2014, the most recent data, a figure higher than any recorded prior to A similar proportion (40.1%) are paid according to an individual arrangement. Collective bargaining remains more prevalent than it was prior to the commencement of the Fair Work Act. 98. It may be that employers have a diminished incentive to bargain given that minimum rates have fallen so far relative to average or median wages. 99. Award reliance has risen disproportionately between 2012 and 2014 in the public sector, where most employees are not covered by the Fair Work Act The increase in award reliance was far from uniform across industries, including across the more award reliant industries Comparing the 2014 and 2012 EEH data shows the following three trends. The density of award-reliant employees in the private sector rose from 18.4% to 21%. The density of award- 45 For example, see Australian Government submission to the Annual Wage Review, p.18 at para 64. ACTU Submission to the Annual Wage Review Page 29

31 reliant employees in the public sector rose from 6.7% to 9.5%. The private sector s share of total employment rose from 80.4% to 81.2% The ACTU s submission to the previous AWR decomposed the increase in award reliance to obtain the relative contributions of those three factors. 46 It found that the rise in award reliance in the private sector contributed 2.1 percentage points to the overall rise in the density of award reliant workers. The rise in award reliance in the public sector contributed 0.6 points, and the fall in the public sector s share of total employment contributed 0.1 points This leaves 2.1 percentage points of the 2.7 point total that are due to a rise in award reliance in the private sector If the Panel s previous decisions had increased award reliance, we submit that the more awardreliant industries would be the most affected. They were not. Accommodation and Food Services is by far the most award-reliant industry, with 44.8% of its employees award reliant in 2012, but this industry experienced a two percentage point fall in award reliance between 2012 and The industry recorded a large increase in the proportion of employees covered by a collective agreement, which rose from 23.8% to 32%. This is not consistent with the hypothesis that the Panel s decisions have undermined the incentive to bargain collectively The change in award reliance by industry between May 2012 and May 2014 is shown in Figure 6, with the more award-reliant industries shown in blue. It can be seen that the change in award reliance among the more award-reliant industries is far from uniform. 46 ACTU 2015 Submission to Annual Wage Review , 27 March,pp Components do not sum to 2.7% due to rounding. 48 These figures are rounded, which is why the 0.7% and 2.1% don t sum to 2.7%. ACTU Submission to the Annual Wage Review Page 30

32 Figure 6: Change in level of award reliance between May 2012 and May 2014 by industry Administrative and support services Public administration and safety Manufacturing Professional, scientific and technical Wholesale trade Transport, postal and warehousing Health care and social assistance Construction Retail trade Electricity, gas, water and waste Arts and recreation services Rental, hiring and real estate services Other services Finance and insurance services Mining Information media and Education and training Accommodation and food services -2% 0% 2% 4% 6% 8% Percentage points Source: ABS 6306 and ACTU calculations. Industries in which more than 20% of employees were award only in 2012 are shaded blue There is no statistically significant relationship found between an industry s level of award reliance in May 2012 and the change in the level of award reliance between May 2012 and May The level of award reliance in May 2012 is not found to affect the change in award reliance between May 2012 and May 2014 as set out in the ACTU submission to last year s AWR The absence of a relationship between the level of award reliance in 2012 and the change in award reliance between 2012 and 2014 supports that the Panel s decisions have not increased award reliance. The more award-reliant industries have not experienced the largest increases in award reliance. 49 ACTU 2015 Submission to Annual Wage Review , 27 March, pp.29. ACTU Submission to the Annual Wage Review Page 31

33 THE STATE OF THE AUSTRALIAN ECONOMY 108. The Australian economy has proved more resilient than expected following the dissipation of the resources boom. a) The Australian economy grew by 3.0% over the year 2015, faster than most of the high income OECD countries; b) Output grew in each of the four most award-reliant industries in 2015, three of them at a higher growth rate than the average for the economy; c) There is no common trend to the average growth rates across the more award-reliant industries; d) Consumer spending grew faster than households incomes in 2015, which should assist those industries that rely it; e) The volume of retail sales grew 2.5% in real terms in 2015, with department store retailing growing at 4.6%; f) The gap between labour productivity growth and wages continues to widen; g) Labour productivity in two very labour intensive most award-reliant industries grew at 0.9%, almost the same rate as productivity in the total economy at 1.0%; h) Australian workers are among the most productive in the world, and our labour productivity continues to grow faster than that of many comparable countries, at 1.7% compared with 0.9% average for the OECD over the five years to 2014; i) Real unit labour costs remain below those of December 2007, eight years ago, as real wages 50 have not kept pace with labour productivity growth; j) The share of wages in income has not risen: it remains at 54.0% over the year to September 2015 because of falls in profit income due to lower asset prices, rather than because of wage increases; k) The share of wages in income is known to have fallen and the profit share risen in at least three of the more award reliant industries which are labour intensive; l) Business bankruptcy rate is the lowest since the GFC and since the series began 12 years ago; and m) Two of the more award-reliant industries, Health Care, and Accommodation and Food, recorded the fastest growth in the number of businesses in Low-paid workers deserve to share in the benefits of productivity growth and a growing economy. An increase of $30/3.9% is appropriate and reasonable in the economic circumstances. Whatever eventuates, low paid workers deserve this raise now and if it is granted 50 Real wages here means hourly labour compensation deflated using output prices. ACTU Submission to the Annual Wage Review Page 32

34 it will not have adverse consequences, rather it is likely to contribute to improvement in the economy. Economic growth 110. The Australian economy grew by 3.0 in real terms over the year 2015, up from 2.2% for 2014, seasonally adjusted. The RBA expects growth of 2.5% to 3.5% over the years 2016 and Figure 7: Real GDP growth (year ended), 2006 to Per cent GDP growth, annual, trend, % GDP growth, annual, seasonally adjusted, % GDP growth, annual, original, % Source: ABS 5206 International comparison of economic growth 111. Australia s economic growth of 3.0% in the year to December 2015 was greater than the OECD average and median real GDP growth rates, both at 2.1%. The gap between Australia s GDP growth and the OECD average has narrowed over 2015 as the OECD country average moved up by nearly half a percentage point from 2014 with continuing overall recovery from the GFC. Australia s GDP growth outpaced all the high income OECD countries except Sweden, and Ireland and Spain which were recovering after suffering the most in the GFC. ACTU Submission to the Annual Wage Review Page 33

35 112. Australia s quarterly GDP growth of 0.9% outpaced the OECD Major 7, average 0.4% for the December quarter While Australia's GDP growth has been below trend in recent times, this is to be expected in the context of the economy adjusting to the reduction in the terms of trade following the end of the construction phase of the resources boom and the global reduction in commodity prices. The absence of any downturn and the continuation of moderate growth is consistent with the views of the RBA in its Statement on Monetary Policy of February Ireland* Luxembourg* Turkey* Czech Republic* Slovak Republic Sweden* Poland Spain Hungary Australia* Mexico United States New Zealand* Chile* United Kingdom* Israel Slovenia* Iceland* Portugal* Germany Belgium France Canada Austria Netherlands Estonia* Switzerland* Italy Denmark* Japan Norway Finland* Greece-1.9 Figure 8: Real annual GDP growth rates across OECD countries, 2015, per cent Source: OECD Stat (quarterly national accounts). Chart shows growth in seasonally adjusted real GDP (expenditure approach) over the year to * denotes countries for which the chart shows growth over the year to the third quarter of 2014, as Q4 data was not yet available in OECD Stat. Growth by industry 114. Real economic output (gross value added) grew in the four most award-reliant industries in Growth was particularly strong three award reliant sectors, Health care and social assistance, Accommodation and food services and Retail trade. The growth in gross value added, seasonally adjusted, in each industry over the year to September 2015 is shown in Figure FWC Statistical Report AWR , p.1 52 RBA 2016 Statement on Monetary Policy February, pp ACTU Submission to the Annual Wage Review Page 34

36 Figure 9: Growth in industry gross value added over the year to September 2015, seasonally adjusted, per cent Information media and telecommunications Rental, hiring and real estate services Financial and insurance services Public administration and safety Health care and social assistance Mining Retail trade Accommodation and food services Education and training Transport, postal and warehousing Wholesale trade Construction Arts and recreation services Electricity, gas, water and waste services Administrative and support services Other services Professional, scientific and technical services Agriculture, forestry and fishing Manufacturing Annual GVA growth, % Source: ABS (seasonally adjusted) and ACTU calculations Only three industries experienced a fall in real output in the year to September This is fewer industries with a fall in output than the average over the last ten years, and all three falls are of less than one per cent. This is another reason that the economy overall has continued to grow quite well There is no evidence that the growth rates of output across industries over time are related to the proportion of workers in the industry who are award reliant, or to the rate of increase in awards, as commented on in previous ACTU submissions (most recently ACTU submission to AWR 2015, [233]-[235]). That is, it cannot be seen that the more award reliant industries grow more slowly, or grow more slowly in years when higher rates are awarded. ACTU Submission to the Annual Wage Review Page 35

37 117. For instance, the four most award reliant industries have all grown at rates similar to or faster than the whole economy over the last twenty-five years. Accommodation and Food services, and Admin and Support Services have grown at rates similar to the whole economy. Retail Trade declined slightly as a share of total economic output since 2002 some probably due to the increase in internet buying, and then has flattened out somewhat since Health Care and Social Assistance has increased its share of the economy by 40% over the last 25 years, particularly with the rise in aged and other care. If award reliance held up industry growth, then the shares of the more award reliant industries in the economy should grow more slowly, but this is not observed. Consumer spending and retail trade 118. Many of the more award-reliant sectors of the economy, such as hospitality and retail, tend to rely on consumer spending to a greater degree than other industries. Consumer spending grew a little faster than the overall economy in Households final consumption expenditure rose by 2.7% in real terms in the year to September 2015 compared with 2.5% growth in GDP. This helped contribute to the strong growth in industry value added experienced in the Retail Trade and Accommodation and Food Services industries, discussed earlier and shown in Figure Households spending grew by 2.7% in real terms in the year to September 2015, around its typical pace for the post-gfc era. Consumption grew faster than households real incomes, which rose by 0.3%. 53 This is shown in Figure 10. Because consumption outpaced income growth slightly, the household savings ratio fell slightly from 7.3% in September 2014 to 7.1% in September 2015, as shown in Figure The savings ratio reached a post-gfc peak and has fallen steadily since then. The elevated household saving ratio is a factor that some employer groups have identified as a factor causing difficulty in industries that depend on consumer spending. To the extent that was true, it is causing less difficulty now than a year earlier, with consumers saving a smaller portion of their income. However because people spend more out of income when income is lower, this is more likely to be a return to trend levels after the plunge in the savings ratio after the GFC. Also households at the lower end of the income distribution spend a larger proportion out of income, and this may be a net consequence as income distribution widens over time. 53 The income measure referred to is household net disposable income, which is household gross disposable income less household consumption of fixed capital. This measure is used as this is what the ABS uses to calculate the household saving ratio. See ABS 2014, Australian System of National Accounts, Concepts Sources and Methods, Catalogue number 5216, p ABS 5206 and ACTU calculations ACTU Submission to the Annual Wage Review Page 36

38 Figure 10: Annual growth in household income and final consumption Per cent Dec-2005 Mar-2006 Jun-2006 Sep-2006 Dec-2006 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Dec-2011 Mar-2012 Jun-2012 Sep-2012 Dec-2012 Mar-2013 Jun-2013 Sep-2013 Dec-2013 Mar-2014 Jun-2014 Sep-2014 Dec-2014 Mar-2015 Jun-2015 Sep-2015 Growth in household consumption, seasonally adjusted, real, year on year, % Growth in net disposable income, seasonally adjusted, real, year on year,% Source: ABS 5206 and ACTU calculations. Household net disposable income is calculated as household gross disposable income less household consumption of fixed capital. Figure 11: Household saving ratio Per cent of household disposable income Sep-2005 Feb-2006 Jul-2006 Dec-2006 May-2007 Oct-2007 Mar-2008 Aug-2008 Jan-2009 Jun-2009 Nov-2009 Apr-2010 Sep-2010 Feb-2011 Jul-2011 Dec-2011 May-2012 Oct-2012 Mar-2013 Aug-2013 Jan-2014 Jun-2014 Nov-2014 Apr-2015 Sep-2015 household savings ratio, % Source: ABS 5206 and ACTU calculations. The household saving ratio is the ratio of household net saving to household net disposable income. Household net saving is calculated as household net disposable income less household final consumption expenditure. Household net disposable income is calculated as household gross disposable income less household consumption of fixed capital. ACTU Submission to the Annual Wage Review Page 37

39 120. Consistent with the solid growth in consumption, the volume of retail sales rose by 3.1% over the year 2015, reflecting similar strong growth over the last two years. This compares with an average growth of 2.9% in retail spending in real terms over the same period including the GFC, and an average of 2.8% per annum growth in consumption in real terms over the 10 years from December This continues healthy growth in spending in the Australian economy. Figure 12: Growth in the volume of retail sales and consumer spending, year on year Per cent Dec-2005 May-2006 Oct-2006 Mar-2007 Aug-2007 Jan-2008 Jun-2008 Nov-2008 Apr-2009 Sep-2009 Feb-2010 Jul-2010 Dec-2010 May-2011 Oct-2011 Mar-2012 Aug-2012 Jan-2013 Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 Growth in household consumption, seasonally adjusted, real, year on year, % Growth in retail turnover, seasonally adjusted, real, year on year % Source: ACTU calculations based on ABS 5206, The retail sector grew at an average of 2.5% in real terms over the year 2015, just below the average of 2.7% over the last five years. There is a great deal of variation in the pace of turnover growth among different sub-sectors and from year to year. All sectors grew over the year Household goods grew the most at 4.8%, clothing and footwear grew at 4.5% and department stores at 4.6%. All the award reliant areas experienced positive retail sales growth over the year to December 2015, including restaurant and takeaway food at 1.2%, the same as food retailing. While three experienced a slight downturn in the last quarter of 2015, this was made up for by the continuing upturn in department store retailing. 55 Other retailing includes newspaper and book retailing; sports, camping equipment, entertainment media, and toy and game retailing; pharmaceutical, cosmetic and toiletry goods retailing; stationery goods retailing; antique and used goods retailing; and flower retailing. ACTU Submission to the Annual Wage Review Page 38

40 Figure 13: Retail turnover by industry sub-sector, real (Index: December 2005=100) Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Index December 2005=100 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Food Clothing and footwear Other retailing Households goods Department stores Restaurant and takeaway food Source: ABS 8501, chain index, seasonally adjusted, and ACTU calculations. Productivity growth 122. In its decision, the Panel indicated that productivity and related measures require consideration in minimum wage fixation. 56 Labour productivity is not simply determined by the level of wages or the minimum wage. Rather, labour productivity is an outcome of the particular combination of inputs and technology which produces the range of outputs of goods and services, and the set of institutions that brings them together. Wages are determined through a set of processes emanating from within those institutions When labour productivity increases above the rate of increase of wages, it is an indication that wages are not reflecting the contribution of labour to output Considering the annual increases for the year to June 2015 alone, we can compare measures of wages growth with those of labour productivity growth. In terms of wages, Average Weekly Ordinary Time Earnings in real terms (deflated by cpi) rose 0.7% over the year to May 2015, and real unit non farm labour costs rose 0.6% to June The measures of productivity all increased as fast or faster over the year to June Real GDP per capita rose 0.8%, real GDP per hour rose 1.0% and GDP per hour in the market sector rose 1.3%. 56 FWC 2015 AWR [182] ACTU Submission to the Annual Wage Review Page 39

41 125. For productivity growth the longer term is more significant because of the length of time processes affecting labour productivity take. Figure 14 shows the sustained difference over the last twenty years between three measures of labour productivity and real average weekly ordinary time earnings. Even if there is some dependence on the starting year for the index, it shows that the increase in labour productivity has been greater than the increase in average wages over the last twenty years. The basically flat wages since June 2013 contrast with the increases in labour productivity since then. Figure 14: Real average weekly ordinary time earnings, and various measures of labour productivity (June June 2016, annual index) Index June 1995= GDP per capita, real GDP per hour worked: Index ; GDP per hour worked market sector, real AWOTE real Source: ABS Cats 5204, 6302, 6401 and ACTU calculations. The market sector excludes services where output is not well measured Another measure of labour productivity is that derived by the ABS in its measures of multifactor productivity. The ABS makes use of standard economic assumptions about the relationship between aggregate inputs and outputs in order to arrive at these estimates (ABS Cat ). The increase in labour productivity is not matched by multifactor productivity (from sources other than capital or labour inputs) which is flat, or capital productivity which is declining. Figure 15 shows measures of labour, capital and multifactor productivity based on the ABS annual estimates. ACTU Submission to the Annual Wage Review Page 40

42 Figure 15: Estimates of labour, capital and multifactor productivity, annual (index June 1995=100) Index June 1995= Labour productivity Capital productivity Multifactor productivity Source: ABS Cat and ACTU calculations 127. Labour productivity continued to increase by all available measures over the year to September This is in a context where all measures of labour productivity exhibit volatility from year to year. GDP per capita increased by 1.0% in the year to September 2015 the same as the year to September GDP per hour worked for the market sector increased by 2.0% in the year to September 2015 up from a 1.6% increase in the year to September The rate of productivity growth has picked up by all measures over the four and a half years since March 2011, as shown in Figure 16 below. ACTU Submission to the Annual Wage Review Page 41

43 Figure 16: Measures of labour productivity, indexes, Dec 2005=100 to Sept Index Dec 2005= Dec-2005 Mar-2006 Jun-2006 Sep-2006 Dec-2006 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Dec-2011 Mar-2012 Jun-2012 Sep-2012 Dec-2012 Mar-2013 Jun-2013 Sep-2013 Dec-2013 Mar-2014 Jun-2014 Sep-2014 Dec-2014 Mar-2015 Jun-2015 Sep-2015 Sources: ABS 5206, seasonally adjusted, and ACTU calculations, and see Statistical report AWR p3. The market sector excludes services where output is not well measured. Figure 17: Annual growth rates in various labour productivity measures, year on year GDP per capita, real, index GDP per hour worked, real, index Gross value added per hour worked market sector, real, index Per cent Dec-2005 May-2006 Oct-2006 Mar-2007 Aug-2007 Jan-2008 Jun-2008 Nov-2008 Apr-2009 Sep-2009 Feb-2010 Sources: ABS 5206, seasonally adjusted, and ACTU calculations, and see Statistical report AWR p4. The market sector excludes services where output is not well measured. Jul-2010 Dec-2010 Growth in GDP per capita, real, % May-2011 Oct-2011 Growth in GDP per hour worked, real, % Mar-2012 Aug-2012 Jan-2013 Growth in GDP per hour worked, market sector, real, % Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 ACTU Submission to the Annual Wage Review Page 42

44 128. GDP per hour worked in the industry in two of the more award reliant industries, health care, and food and accommodation, grew at almost the same annual rate, 0.9%, as the whole economy, 1.0%, in This is shown in Figure 18. These are very labour intensive industries where labour productivity would not be expected to grow as fast as the rest of the economy which is more capital intensive and can increase labour productivity by adding to capital and / or improving technology. Retail, another labour intensive area which is being affected by online sales, still has growing labour productivity. Figure 18: Growth in labour productivity (GDP per hour worked) in Mining Electricity, gas, water and waste services Financial and insurance services Other services Agriculture, forestry and fishing Information media and telecommunications Wholesale trade ALL INDUSTRIES Health care and social assistance Accommodation and food services Public administration and safety Retail trade Rental, hiring and real estate services Construction Education and training Manufacturing Administrative and support services Professional, scientific and technical services Transport, postal and warehousing Arts and recreation services Source: ACTU calculations based on ABS As will be addressed in the section Securing a fair share of productivity growth, the real value of the NMW has not kept pace with productivity growth, either at the total-economy level or in the more award-reliant industries The increase we seek in this review would ensure that workers reliant on minimum wages receive a fair share of recent productivity growth, while restoring some ground lost in previous years. ACTU Submission to the Annual Wage Review Page 43

45 International comparisons of productivity growth 131. Australian workers are among the most productive in the world. On average, Australian workers produce goods and services worth US$53 per hour worked, in Purchasing Power Parity (PPP) terms. This compares to an OECD average of $46 per hour worked. Australia s level of labour productivity is higher than that of the United Kingdom ($48), Canada ($48), New Zealand ($36) and most other OECD countries, as shown in Figure 19. Figure 19: Level of labour productivity (GDP per hour worked) in OECD countries in 2014, US dollars converted at Purchasing Power Parity Luxembourg Norway USA Belgium Ireland Netherlands France Germany Denmark Switzerland G7 Sweden Australia Austria Euro 19 Finland Canada UK Spain Italy EU 28 OECD Iceland Japan Slovak Republic Slovenia New Zealand Israel Greece Czech Portugal Korea Hungary Estonia Turkey Poland Chile Mexico GDP per hour worked in 2014, US dollars PPP Source: OECD Stat Australia s level of labour productivity is 16 percentage points higher than the OECD average and thirteenth highest out of the 38 OECD countries. Nonetheless labour productivity has grown at a faster rate in Australia than in any of the countries to which Australia is usually compared. On average, Australian labour productivity grew by 1.7% per year between 2009 and 2014 significantly faster than the OECD average of 0.9%. ACTU Submission to the Annual Wage Review Page 44

46 Figure 20: Average annual labour productivity growth in OECD countries 2009 to 2014 Poland Korea Slovak Republic Estonia Hungary Ireland Chile Australia Spain Slovenia Israel European Union (28 countries) Euro area (19 countries) Canada Turkey Portugal Japan Germany Sweden Switzerland Luxembourg Denmark Czech Republic OECD - Total G7 France United States Netherlands Austria Finland Belgium United Kingdom Italy Norway New Zealand Mexico Iceland Greece Annual average growth in GDP per hour worked, constant prices, % Source: OECD Stat ( ) 133. Australia s labour productivity continues to grow at a strong rate from a high base. Low-paid workers should share in the benefits of this growth. The OECD and the IMF recognise that higher inequality worsens productivity and growth, and that inequality is related to slow growth in wages at the lower end According to the OECD (2015) The rise of income inequality.. is estimated to have knocked 4.7 percentage points off cumulative growth between 1990 and 2010, on average across OECD countries.. The key driver is the growing gap between lower-income households the bottom 40% of the distribution and the rest of the population. In particular. low-skilled temporary workers face substantial wage penalties, earnings instability and slower wage growth OECD 2015b In It Together: Why less inequality benefits all, May, p15. ACTU Submission to the Annual Wage Review Page 45

47 135. The new and eminent chief economist at the IMF, Maurice Obstfeld, said on 4 January 2016: Trends in inequality also warrant attention. Despite considerable global convergence in national per capita incomes, a more equitable income distribution within countries has not necessarily followed. This inequality has implications for overall economic productivity (for example, through health outcomes) and for the political sustainability of market-friendly policies. 58 Unit labour costs and the labour share of income 136. The Panel made the following observation regarding real unit labour costs in its decision: Real unit labour costs remain at historically low levels. The unit labour cost data shows, in aggregate, an absence of cost pressures from the labour market Real unit labour costs had risen by 0.8% in 2014, and have barely increased to 0.9% for the year The Panel s observation thus remains an accurate summary of the state of unit labour costs in Australia Australia s real unit labour cost growth rate of 0.5% over the year to September 2015 is not high compared with other OECD countries, as shown in Figure 21 below. The OECD average unit labour cost grew by more than twice as much, at 1.3% FWC 2015 AWR [20] ACTU Submission to the Annual Wage Review Page 46

48 Figure 21: Growth in real unit labour costs, OECD countries, year to September 2015 Estonia Hungary Denmark United States Germany Austria New Zealand OECD - Total Israel United Kingdom Italy Finland Norway Korea Canada Slovak Republic Euro area (19 countries) France Australia Sweden Switzerland Spain Slovenia Japan Belgium Netherlands Czech Republic Greece Poland Ireland Luxembourg Portugal Per cent growth over year to September 2015 Source: OECD Data extracted on 02 Mar :49 UTC (GMT) from OECD.Stat, unit labour costs, index, seasonally adjusted, and ACTU calculations 139. Over the year to December 2015, Australia s real unit labour costs rose by only 0.9% compared with 0.8% for the year before (seasonally adjusted, ABS Cat ). Real unit labour costs had been declining in the run up to the GFC when they reached record low levels, then rose throughout the mining boom reflecting the influence of faster growing labour costs in the mining sector relative to the rest of the economy. The December 2015 value is the first time in eight years that real unit labour costs have reached the level before the GFC, at December 2007, shown in the following Figure. They are still 6.8% below the level of twenty years ago, and 12.0% below the level of thirty years ago Real unit labour costs provide a measure of the inflation-adjusted cost of employing labour to produce a given quantity of output. Changes in real unit labour costs reflect changes in the wages share of total income in the economy. The movements in labour s share of income mirror the changes in the real unit labour cost and the ground that labour has lost in wages over a long period. This is shown by comparing the movement of the wages share of total income Figure 22 with the movement in the real unit labour cost in Figure 23. ACTU Submission to the Annual Wage Review Page 47

49 Figure 22: Share of compensation of employees in total factor income, Per cent Dec-1995 Jun-1996 Dec-1996 Jun-1997 Dec-1997 Jun-1998 Dec-1998 Jun-1999 Dec-1999 Jun-2000 Dec-2000 Jun-2001 Dec-2001 Jun-2002 Dec-2002 Jun-2003 Dec-2003 Jun-2004 Dec-2004 Jun-2005 Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Share of wages in total factor income, % Source ABS , seasonally adjusted, and ACTU calculations Figure 23: Real Unit Labour Costs, index, Index Dec-1995 Jun-1996 Dec-1996 Jun-1997 Dec-1997 Jun-1998 Dec-1998 Jun-1999 Dec-1999 Jun-2000 Dec-2000 Jun-2001 Dec-2001 Jun-2002 Dec-2002 Jun-2003 Dec-2003 Jun-2004 Dec-2004 Jun-2005 Dec-2005 Jun-2006 Dec-2006 Jun-2007 Dec-2007 Jun-2008 Dec-2008 Jun-2009 Dec-2009 Jun-2010 Dec-2010 Jun-2011 Dec-2011 Jun-2012 Dec-2012 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Source: ABS , seasonally adjusted. Unit labour cost - Real ; ACTU Submission to the Annual Wage Review Page 48

50 141. The ABS estimate of the wages share of income continues to fall within the more award-reliant industries, as shown through their increase in profits share, the mirror image, in Figure 24. The wages share of income fell in three more award reliant industries over , with the fourth one unavailable as it s not included the ABS market sector measure of output. The wages share of income fell in by one percentage point each in Retail, and Administrative and Support services, and by two percentage points in Accommodation and Food Services, with the fourth, Health and Social Support breakdown unavailable The wages share of income in Accommodation and Food Services fell from a peak of 87% in , to 80% in (the final year before the Fair Work Act), to 77% in The wages share in Retail Trade was 79% in , 74% in , and 70% in The fall in the wages share in these industries is equivalent to a fall in real unit labour costs. And yet these are labour intensive industries where employment is growing the fastest Minimum wages have grown more slowly than average wages, so it follows that minimum wages have lagged even further behind productivity growth. As shown the section Securing a fair share of productivity growth the real value of the NMW has not kept up with productivity growth over the past decade, including within the more award-reliant industries. We submit that very modest rises in the real value of minimum wages have contributed to the failure of the overall labour share of income to recover to previous levels. Profits 144. The share of income flowing to capital (the profits share of income) has increased in the past decade (the mirror image of the wage share of factor income), as noted by the Panel in its decision. 60 The Panel noted in its decision of that they still assessed the factor shares of income and concluded that longer-term trends in the labour share of national income should be kept in mind, as they can influence assessments of the fairness of, and relative standard of living provided by, minimum wages The share of profits (payments to capital) in total factor income is shown in Figure 24, for two award reliant industries, mining and two measures of the market sector of the economy where the output is more reliably measured. The fall in the wages share / rise in the profits share indicates that average real wages have not grown as rapidly as labour productivity especially in the more award-reliant industries. 60 [2014] FWCFB 3500, [24] 61 FWC AWR [189] ACTU Submission to the Annual Wage Review Page 49

51 Figure 24: Shares of profits in factor income by industry, annual, Capital share in factor income Mining Accommodation and Food Services 16 Market Sector Retail Trade 12 Market sector Source: ABS Estimates of Industry Multifactor Productivity, Australia 146. Figure 24 above shows the falls in the mining profits share since 2010 in that very capital intensive industry, due to lower commodity prices and lower returns to mining sector assets. The slight fall in profits share over 2015 in the two relatively capital intensive market sectors also reflects the fall in commodity prices and asset pricing in resource dependent sectors including mining. The key point is that this is not due to any increase in compensation of employees, but rather a fall in payments to capital This is reflected in Chart 3.2 of the AWR Statistical Report The growth rate in company gross operating profits of close to zero in 2015 reflects the fall in commodity prices and assets in the resource dependent sectors. Moreover these are not sectors which rely on minimum wages much relative to other sectors Awarding the increase we seek in this Review would ensure that low-paid workers share in the benefits of productivity growth. Through reducing inequality, this would promote economic growth. ACTU Submission to the Annual Wage Review Page 50

52 Business bankruptcy rates 149. The FWC Statistical Report for the AWR shows that the business bankruptcy rate continued to fall from 0.38% in down to 0.33% for , below the lowest point of 0.34% at the GFC based on Australian Financial Security Authority (ASFA) data. 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 There were fewer business-related bankruptcies in than in the last twelve financial years, since the start of the ASFA data series in There were business-related bankruptcies in the past financial year, down nearly 12.6% from the recorded in The number of business-related bankruptcies recorded in 2015 was the lowest in the twelve year history of ASFA s bankruptcy time series. The fall in business-related bankruptcies has been broad-based across all states and territories including WA and Queensland The falling rate of business-related bankruptcies is consistent with the current positive evidence for unexpectedly good business conditions. Business entry and exit 152. The number of businesses overall grew by 1.0% in , the same rate as the previous year, consistent with higher entry than exit rates in both years. This is a sign of a continuing healthy business environment, especially where increasing firm concentration would be expected to reduce the number of businesses Entries were 13.4% of the number of businesses in at the start of , compared with 13.7% in Exits were 12.4% in compared 12.7% in See Chart 3.3 and footnote p7 of the FWC AWR Statistical Report Australian Financial Security Authority 2015, Provisional business and non-business personal insolvency time series December 2015 update, Australian Government, Canberra. Available from: [Accessed23 March 2016]. ACTU Submission to the Annual Wage Review Page 51

53 154. Two of the more award-reliant industries, Health Care, and Accommodation and Food, recorded the fastest growth in the number of businesses in as shown in Table 6 below. The retail business shrinkage, -1.8%, contrasts with the increase in employment of 3.7%. This may be due to increasing firm concentration and use of internet purchase in that sector. The number of businesses operating in the Health Care and Social Assistance industry increased by 3.9% over the year, while those in the Accommodation and Food Services industry rose by 2.4%. This is shown in Table 6. The award reliant industries are a big and increasing share of industry employment. ACTU Submission to the Annual Wage Review Page 52

54 Table 6: Growth in the number of businesses in by industries Industry Growth in number of businesses, % Share of employment, November 2015 Growth in number of employees, % Year to November 2015 Agriculture, Forestry and Fishing Mining Manufacturing Electricity, Gas, Water and Waste Services Construction Wholesale Trade Retail Trade Accommodation and Food Services Transport, Postal and Warehousing Information Media and Telecommunications Financial and Insurance Services 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 Arts and Recreation Services Other Services All Industries Source: ABS cats 8165, and ACTU calculations. First column shows the percentage change from businesses operating at the start of the financial year These figures suggest that business continues not to face adverse conditions. ACTU Submission to the Annual Wage Review Page 53

55 Inflation 156. Inflation was at 1.7% for the year 2015, the same as the previous year. 64 According to the RBA various measures of underlying inflation, which strips out volatile items, suggest that underlying inflation was about 2 per cent and in line with its forecast. The depreciation of the Australian dollar is putting upward pressure on the price of tradeable goods, while a period of spare capacity in the labour market and declines in the cost of business inputs have put downward pressure on inflation The RBA forecasts inflation between 2% and 3% over the year 2016 and If our claim is accepted, we believe the contribution of the increase to inflation would be very small. It would add less than half a percentage point at the very most, based on the level of award reliance and the contribution of labour costs. Wages 158. Wages growth was slow in 2015, with the Wage Price Index rising by only 2.2% in the year to December, compared with 2.5% the year before, the slowest rate of growth in the history of the measure. Slow growth in the private and public sectors continues. 64 ABS 6401 and FWC AWR Statistical Report Chart RBA 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, pp RBA 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, p.61. ACTU Submission to the Annual Wage Review Page 54

56 Figure 25: Annual growth in the Wage Price Index, Per cent Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Wage Price Index annual growth, % Figure 26: Growth in public & private sector WPI, Per cent Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013 Wage Price Index, private, annual growth, % Dec-2014 Wage Price Index, public, annual growth, % Dec-2015 Source: ABS 6345 and ACTU calculations Wages growth continues to slow across the board according to the Wage Price Index. Wages growth in each industry for the year 2015 was below the industry s long-run average, as shown in Figure 27. ACTU Submission to the Annual Wage Review Page 55

57 Figure 27: Wages growth and the long run average, by industry Financial and insurance services Education and training Retail trade Manufacturing Health care and social assistance Other services Arts and recreation services Accommodation and food services Electricity, gas, water and waste services Public administration and safety Information media and telecommunications Transport, postal and warehousing All industries Rental, hiring and real estate services Wholesale trade Professional, scientific and technical services Construction Mining Administrative and support services Source: ABS 6345 and ACTU calculations Annual per cent growth 10 year annual average growth Year to December 2015 growth 160. The WPI is not alone in showing a significant deceleration in wages growth. All measures of wages have grown below their average pace, as shown in Figure 28. ACTU Submission to the Annual Wage Review Page 56

58 Figure 28: Measures of wages growth Average compensation per employee Wage Price Index Average weekly ordinary time earnings (adult) Average weekly earnings (all employees) Minimum wage Average wage increase in current EBAs Average wage increase in EBAs lodged in Sept 2015 quarter Per cent latest annual, % 10 year average growth, annual % Source: Average compensation per employee is from ABS Wage Price Index from ABS AWOTE and AWE from ABS Minimum wage from past FWC/AFPC/AIRC decisions. Average annualised wage increases in federal enterprise agreements ( EBAs ) from the Department of Employment Trends in Federal Enterprise Bargaining. Rates of change are ACTU calculations. Note that median full time earnings series in ABS Cat 6130 ceased to be published at Wages growth has slowed more than would have been expected given the state of the macroeconomy. The RBA noted the decline in wage growth in its February 2016 Statement on Monetary Policy, observing that the decline has been more pronounced than that implied by the historical relationship with the unemployment rate. 67 That is, in the RBA view, wage growth has been even slower than that which would be expected given the relatively high rate of unemployment. Wage growth is even weaker than would be expected given the weakness of the labour market. The RBA indicates that a lower level of inflationary expectations and an increase in labour market flexibility may help explain this. The ACTU observes that wages have not kept pace with labour productivity growth and GDP growth. This reinforces the case for minimum wage increases to address this where labour market flexibility does not The relatively modest increases in minimum wages awarded in previous Reviews may have contributed to the extent and longevity of the fall in wages growth. The minimum wage has increased 3.1% per annum on average over the last 10 years. This is a period over which the cpi average growth is 2.6% per annum. This means a bare 0.5% real growth in the minimum wage over the period. 67 p.57 RBA 2016, Statement on Monetary Policy, February, RBA, Sydney. ACTU Submission to the Annual Wage Review Page 57

59 THE STATE OF THE LABOUR MARKET 163. This chapter of the ACTU s submission shows that: a) Employment increased 398, 300 or 2.6% in the year to January 2016, double that of the previous year; 42% of which was the award reliant Health Care and Social Assistance b) The unemployment rate has fallen slightly from 6.3% at January 2015 to 6.0% at January 2016, seasonally adjusted; c) the number of unemployed persons per vacancy has fallen from 4.7 to 4.0 in the year to November 2015; d) The participation rate has risen for all persons aged 15 and over was 65.2% (seasonally adjusted) in January 2016, up from 64.7% in January 2015, notwithstanding the ageing population, whereas participation for age 15 to 65 rose to an all-time high of 77.3%; e) Youth unemployment has fallen faster than total unemployment, from 13.6% in January 2015 to 13.0% in January 2016; f) The large variation in the unemployment rate over time is most clearly related to the level of aggregate demand in the economy and the pace of economic growth rather than issues specific to the labour market; g) Employment grew in all of the four most award reliant industries. It grew very rapidly in Health Care and Social Assistance, at 9.7% over the year to November 2015, and Administrative and Support Services, 8.2%. It also grew faster in Retail at 3.1% than total employment, and at 1.8% in Accommodation and Food. Overall there is no relationship between the level of award-reliance in an industry and the pace of employment growth; and h) The unemployment rate has improved in six jurisdictions, with the other two worsening only very slightly. The dispersion in labour market conditions across regions remains relatively low reflecting the degree of labour mobility between states The labour market indicators are above forecast and there is no sign that this will not continue, contrary to expectation. Our claim is appropriate given the current state of the Australian labour market. Employment and unemployment 165. Employment has increased unexpectedly over the year to January There were 398, 300 more Australians in work in January 2016 than in January 2015, a growth of 2.6% in the numbers employed. This is twice the increase of the previous year of 1.3%, and above expectation. Almost ACTU Submission to the Annual Wage Review Page 58

60 half, 47%, of the employment growth was in part-time work 68, 1.5 part time workers being employed for every full time worker employed in the year to January The share of part time workers in employment has increased rapidly, standing at 31.1% in January 2016, up from 28.3% ten years before However the employment increase of 298, 000 was largely met by the labour force increase of 276, 000 over the year to January The other 22, 000 increase in employment is matched by an almost exactly equal fall in unemployment of 22, Moreover the employment to population ratio has increased from 60.6% in January 2015 to 61.3% in January 2016, the highest in two and half years The unemployment rate has fallen slightly from 6.3% at the January 2015 down to 5.8% in November, to 6.0% at January 2016 (seasonally adjusted). Figure 29: Unemployment rate over the last 20 years, per cent of the labour force Per cent Dec-1995 Sep-1996 Jun-1997 Mar-1998 Dec-1998 Sep-1999 Jun-2000 Mar-2001 Dec-2001 Sep-2002 Jun-2003 Mar-2004 Dec-2004 Sep-2005 Jun-2006 Mar-2007 Dec-2007 Sep-2008 Jun-2009 Mar-2010 Dec-2010 Sep-2011 Jun-2012 Mar-2013 Dec-2013 Sep-2014 Jun-2015 Unemployment rate, seasonally adjusted, % Source: ABS ABS Cat 6202, which defines part-time employed persons as those who usually work less than 35 hours per week, and actually worked less than 35 hours in the survey reference week in all of their jobs. Full-time employed persons are defined as those who usually work 35 hours or more per week, regardless of how many hours they actually worked, or those who actually worked 35 hours or more in the reference week despite usually working less than 35 hours per week. This definition results in a bias towards people being categorised as employed full-time. It does not distinguish whether their employment status is casual or permanent. dno=6202.0&issue=sep%202013&num=&view= 69 ABS Cat 6202, seasonally adjusted ACTU Submission to the Annual Wage Review Page 59

61 169. Comparison of unemployment with vacancies provides an indication of the level of involuntary unemployment in the economy and its sensitivity to the level of aggregate demand in the economy, as shown in Figure 30. The ratio of number unemployed to number of vacancies is countercyclical, increasing in downturns and falling in upturns. It has fallen from 4.7 to 4.0 unemployed persons per vacancy in the year to November This is despite the increase in the participation rate in that time. That is, even though people are entering the labour market, they are finding employment at a faster rate than previously. Figure 30: Ratio of number of unemployed to number of vacancies, May 1979 to November 2015 number of people Oil price increase Recession Asian crisis May-1979 May-1980 May-1981 May-1982 May-1983 May-1984 May-1985 May-1986 May-1987 May-1988 May-1989 May-1990 May-1991 May-1992 May-1993 May-1994 May-1995 May-1996 May-1997 May-1998 May-1999 May-2000 May-2001 May-2002 May-2003 May-2004 May-2005 May-2006 May-2007 May-2008 May-2009 May-2010 May-2011 May-2012 May-2013 May-2014 May-2015 unemployed per vacancy, original Sources: ABS 6202, 6354 (original) and ACTU calculations. Vacancies data is unavailable from Feb 2008 to Feb 2010 GFC Participation in the labour force and the effect of ageing 170. Labour force participation has continued to rise over the two years to January 2016, despite the growing population over 65, and with help from an increase in youth participation. The participation rate for all persons aged 15 and over was 65.2% (seasonally adjusted) in January 2016, up from 64.7% in January Labour force participation is of course higher among people aged than for the total which includes those over 65. Participation rate for age group rose to 77.3% in January 2016 up from 76.5% a year earlier, seasonally adjusted, an increase of 245, 000 in just a year. ACTU Submission to the Annual Wage Review Page 60

62 Figure 31: Participation rates, total and aged 15-65, percentages of respective group populations, Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Per cent of group population Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Participation rate ; Persons ; 15-65, % Participation rate ; Persons ; total, % Source: ABS Cat 6202, seasonally adjusted 171. The labour force over 65 increased by 7.2% over the year to January 2016, more than twice as fast as the increase in the population over 65 of 3.4%, and that contributed to the total increase in the participation rate. While the participation rate over 65 is low at 12.7%, it has risen from 12.2% a year ago, by 31,000, to a total of 460, 000 active in the workforce who are over 65. This is seen as the difference between the total numbers participating and those aged 15 to 65 participating as shown in Figure 32. Participation in those aged over 65 is likely to continue rising. ACTU Submission to the Annual Wage Review Page 61

63 Figure 32: Labour force, total, and aged 15 to 65 years old, 1000s, 1996 to ,000 12,000 11,000 10,000 9,000 8,000 Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Jan s Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Labour force total ; Persons ; Labour force total ; Persons ; Source: ABS Cat 6202, seasonally adjusted 172. At 77.3% in January 2016, the participation rate for people aged is the highest it has ever been over the year since With participation rates continuing to increase, a discouraged worker effect due to the increased rate of unemployment is not apparent in recent years. Changes in the unemployment rate summarise the cyclical state of the labour market, which is dependent on the level of aggregate demand, so that most unemployment is seen to be involuntary. The youth labour market 174. The youth participation rate which fell by nearly five percentage points in six years post GFC, from 71.2% in July 2008 to 66.3% in October 2014 has also recovered by one percentage point over the 15 months to January 2016, as shown in Figure 33 below. The trend fall in youth participation rate since the GFC is the result of a complex of factors, including the interaction between changing labour market and education conditions. ACTU Submission to the Annual Wage Review Page 62

64 Figure 33: Participation rate, aged 15 to 24, percentage age group population, Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Per cent Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Australia ; Participation rate ; 15-24, % Source: ABS Cat 6202, seasonally adjusted; rate is trend ACTU calculation 175. The rise in youth participation has also been met by a fall in the youth unemployment rate, from 13.6% in April 2015, the highest since 2002, down to 13.0% in January The movement in the youth unemployment rate tends to track the total unemployment rate, with the difference between youth and total unemployment narrowing as unemployment falls and increasing as unemployment rises. Currently youth unemployment is coming down faster than total unemployment, which has come down from 6.1% to 5.8%, 0.3% in the same 10 month period. ACTU Submission to the Annual Wage Review Page 63

65 Figure 34: Unemployment rate, total, and 15-24, trend, Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 Jan-2001 Per cent Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Australia ; Unemployment rate ; 15-24, % Australia ; Unemployment rate ; total, % Source: ABS Cat 6202, rate for yo is trend ACTU calculation 176. Australia s youth unemployment has come down from the previous year as have most of the OECD country figures, in the aftermath of the GFC. Australia s is just below the OECD average, as shown in Figure 35 below. ACTU Submission to the Annual Wage Review Page 64

66 Figure 35: Youth unemployment rate in OECD countries in the September quarter of 2015 Greece Spain Italy Portugal Slovak Republic France Finland Belgium Ireland Sweden Poland Turkey Luxembourg Hungary New Zealand Chile United Kingdom Slovenia OECD - Total Australia Canada Czech Republic Denmark Netherlands Estonia* United States Austria Switzerland Norway Korea Israel Iceland Mexico Germany Japan Per cent Source: OECD Stat. *July quarter 177. The relationship between total unemployment and youth unemployment cannot be attributed to movements in wages or the minimum wage and awards. The evidence suggests that movements in unemployment in Australia have been cyclical in nature and are related to the state of aggregate demand and the pace of economic growth. There are not structural changes occurring in the labour market which would for instance change the relationship between youth and other sectors of the labour market The movements in the unemployment rate are much bigger than wage changes over time and primarily reflect the state of aggregate demand for the economy. The recent fall in the unemployment rate aligns with the higher than expected growth in the economy of 3% for Wage increases will encourage growth in aggregate demand. ACTU Submission to the Annual Wage Review Page 65

67 Employment by industry 179. Employment grew in all four most award reliant industries. Employment growth in Health Care and Social Assistance, that award reliant sector, has grown by 134,700, or 9.7% over the year to November 2015, as shown in the following figures. This is an extraordinary 42% of the entire trend increase in employment in the year to November This is an indication of how the ageing population is employment creating. Almost one in eight workers is in the Health Care and Social Assistance sector, 12.8% of total employment Retail employment grew 38,100 on trend, a growth rate of 3.1%, reflecting the growth in consumption. Administrative and Support Services grew by 31,600 workers, 8.2%. Accommodation and Food Services grew by 15,000 or 1.8%. Figure 36: Growth in employment in the year to November 2015 (thousands of persons) Health Care and Social Assistance Professional, Scientific and Technical Services Retail Trade Financial and Insurance Services Education and Training Administrative and Support Services Accommodation and Food Services Transport, Postal and Warehousing Information Media and Telecommunications Wholesale Trade Construction Other Services Arts and Recreation Services Public Administration and Safety Electricity, Gas, Water and Waste Services Rental, Hiring and Real Estate Services Mining Agriculture, Forestry and Fishing Manufacturing Change in employment over year to November 2015, 1000s Source: ABS (trend) and ACTU calculations. ACTU Submission to the Annual Wage Review Page 66

68 Figure 37: Growth in the year to November 2015, per cent Health Care and Social Assistance Financial and Insurance Services Administrative and Support Services Professional, Scientific and Technical Services Information Media and Telecommunications Education and Training Retail Trade Employed total Transport, Postal and Warehousing Accommodation and Food Services Wholesale Trade Other Services Arts and Recreation Services Electricity, Gas, Water and Waste Services Construction Public Administration and Safety Rental, Hiring and Real Estate Services Agriculture, Forestry and Fishing Mining Manufacturing -5.4 Source: ABS (trend) and ACTU calculations Growth in employment, year to November 2015, per cent 181. The four most award reliant sectors share of employment has jumped from 33.0% in November 2014 to 33.9% in November Taken together, the four industries that are the largest employers of award-only workers grew at 5.8%, twice the pace of the overall labour market in the year to November 2015, with employment growing by 2.8%, nearly twice as fast as the year before The wide range of growth in employment across industries is shown in Chart 6.5, p.48 of the Statistical Report of the AWR Figure 38 shows the big range of total growth for the ten years in employment across the four more award reliant industries compared with the total employment growth on trend over ten year to November Health and Social Assistance grew 50.8% and Accommodation and Food grew 23.1%, compared with total employment growth of 19.6% over the ten years. Administrative and Support Services grew at 19.4% and Retail at 9.0% over the ten year period to November ACTU Submission to the Annual Wage Review Page 67

69 Figure 38: Growth in employment in the four more award reliant industries and total, trend, 10 years to November Per cent increase in employment year growth in Retail employment,% 10 year growth in Accomm and FS employment,% 10 year growth in Admin and SS employment,% 10 year growth in Health and SA employment,% 10 year growth in total employed, % Source: Source: ABS (trend) and ACTU calculations As previously, employment growth in the most award-reliant industries is likely to be strongly influenced by industry specific factors. Retail service and sales includes online sales which are less labour intensive. Accommodation and food services is likely to be sensitive to movements in the Australian dollar and preferences related to cooking. Health and social support is related the ageing population There is no consistent long-term trend in the employment shares of these award reliant industries that can be related to specific changes in minimum wages and awards. Growth in those consumption service industries may be related to higher expenditure related to higher household incomes related to higher wages. There is no evidence that the Panel s previous decisions have dampened growth in those industries We can reiterate that there is no apparent relationship between the level of award reliance in an industry and the projected rate of employment growth to November 2019 by the Department of Employment, as indicated in the ACTU submission to last year s Review ACTU submission to AWR [337],][338] ACTU Submission to the Annual Wage Review Page 68

70 Regional dispersion of labour force conditions 186. The state of the labour force has been uneven across the country. The unemployment rates of the states and territories range from 4.4% in the Northern Territory to 7.1% in South Australia, seasonally adjusted. Figure 39: Unemployment rate, States and total, seasonally adjusted, January 2016, per cent of labour force South Australia Tasmania Queensland Victoria Australia Western Australia New South Wales ACT NT Per cent of labour force ABS Figure 40 shows the overall reduction in numbers of unemployed over the year to January Even in the mining dependent states of WA and Queensland, the increase in unemployed numbers is around 4000 each over the year. Mining related sectors are amongst the least award reliant. ACTU Submission to the Annual Wage Review Page 69

71 Figure 40: Change in unemployed numbers, states and total, year to January 2016, 1000s. Western Australia Queensland ACT 1.0 NT Tasmania Victoria -4.3 South Australia -6.5 New South Wales Australia Source: ABS 6202 and ACTU calculations The spread of unemployment results is typical and the range has narrowed in recent years as shown in Figure 41 below which shows trend unemployment rates over the last ten years. This does not suggest the mining boom has widened state disparities in unemployment rates. Figure 41: Unemployment percentage of work force, States, trend, over the 10 years to January Per cent of workforce Australia New South Wales Victoria Queensland South Australia Western Australia Tasmania Northern Territory Australian Capital Territory ABS 6202, trend ACTU Submission to the Annual Wage Review Page 70

72 189. Over the year to January 2016, the unemployment rate fell in six out of eight jurisdictions. The change in unemployment ranged from falls in the unemployed share of the workforce of 0.8 percentage points in South Australia and 0.7 percentage points in NSW, to increases of 0.3 percentage points in Western Australia and the ACT, seasonally adjusted Figure 42 compares the changes in percentage of the workforce unemployed over the year to January 2016 with the average annual changes over the 10 years to January By contrast with the current year six out of eight experienced increases in unemployment over the last ten years, indicating a better performance this year. The performance was better this year than over the last ten years on average. The anticipated end of the mining boom did not worsen unemployment in Queensland. The rise in unemployment in WA was less than the previous year. The biggest improvement, of 0.7% in South Australia was related to its new energy policies. Figure 42: Change in unemployment rate, over year to January 2016 and annual average over 10 years to January 2016 Australian Capital Territory Western Australia Northern Territory Queensland Tasmania Victoria Australia New South Wales South Australia Percentage of workforce, change annual average change over 10 years change over year Source: ABS 6202 and ACTU calculation Source: ABS 6202, ABS and ACTU calculations. Standard deviation of regional unemployment rates is based on original data, which is then seasonally adjusted by the ACTU using X12-ARIMA The relatively small disparity in unemployment rates across States reflects the degree of labour mobility between them. If workers moved around less across State borders to find work then higher unemployment would be much more persistent in some States than others. There would ACTU Submission to the Annual Wage Review Page 71

73 be rigidities in the labour market across States. This is confirmed by the persistently higher unemployment in the island State of Tasmania between which and the other States less mobility would be expected. There is no evidence that unemployment disparities and changes in them are related to changes in the national minimum wage or modern award minimum wages. ACTU Submission to the Annual Wage Review Page 72

74 THE ECONOMIC OUTLOOK 192. The Australian economy in many respects has performed towards the top end of the range or exceeded forecasts in In particular GDP grew more at 3.0% rather than the 2.2% to 2.5% anticipated We anticipate that Australia s economy will grow faster this year than it did last year, and that growth will pick up further in There is cause for optimism about the outlook for the labour market. Forward-looking indicators of the state of the labour market, including job advertisements, job vacancies, and consumers unemployment expectations, have all improved in recent months. Forecasts from the IMF and OECD expect the unemployment rate to fall Whatever circumstances arise, we maintain that the minimum wage increase we request is warranted, and will not be detrimental to the economy, and is likely to improve it. The growth outlook 196. The 3.0% growth in GDP for the year to December 2015 released on 2 March exceeded the RBA forecast of 2.5% for that year. 72 It may be that the decline in the Australian dollar after the mining boom and with falling commodity prices, is in fact benefitting the economy. We would expect the higher growth in GDP to continue through 2016 and 2017, and to be at the top end of the RBA range forecast of 2.5% to 3.5% for 2016 and The corollary is that we expect forecasts to be revised upwards in response to the better than expected results This disparity between forecast and actual is symptomatic of the uncertainty inherent in economic forecasting. The multitude of factors that can affect the Australian economy from international developments to domestic policy decisions to the ephemeral confidence of consumers and households cannot be predicted with any precision. The Reserve Bank can only be 90% sure that GDP growth in 2016 will be somewhere between 0.4% and 4.5% The Treasury also downgraded its Budget forecast of GDP growth of 2.75% for to 2.5% in its MYEFO of 15 December 2015, prior to the release of the 2015 GDP growth figures ABS Cat , released 72 Table 6.1, p.61, RBA 2016 Statement on Monetary Policy February 73 Graph 6.3, p.63, RBA 2016 Statement on Monetary Policy February. 74 The Treasury 2015 MidYear Economic and Fiscal Outlook December, Part 2 p.5. ACTU Submission to the Annual Wage Review Page 73

75 199. The OECD had also downgraded its forecasts from November 2015 to those in February 2016 for world GDP, indicating it will have the same growth in 2016 as Yet Australia s growth figure of 3.0% for 2015 has already exceeded the OECD forecast in November of 2.3%, and also its forecast for Such variations indicate the uncertainty surrounding forecasting and may apply to the OECD forecasts for other countries. In any case the OECD s growth forecast for Australia in 2016 remains the sixth highest of 23 high income OECD countries, with Greece the lowest and Ireland the highest The IMF Article IV consultation with Australia in September 2015 indicated a 2.5% growth rate for Australia in 2015, and has forecast 3.0% for 2016 and 3.1% for The Economist conducts a regular poll of private forecasters, most of which are major international financial institutions. Australia s actual GDP growth of 3.0% for 2015 exceeded the forecasters average forecast of 2.6% for that year. In the latest poll of March 2016, these forecasters expect the Australian economy to grow by 2.5% in 2016, exceeded only by South Korea, Spain and Sweden out of 16 high income countries. 77 Again based on GDP growth and other indicators for Australia in 2015 as addressed in the Chapter on The state of the Australian economy, we would suggest that these forecasts are too conservative The Sydney Morning Herald (SMH) Business Day surveyed a panel of 26 Economists from a range of backgrounds and institutions published on 30 January Figure 43 summarises the forecasts of the panel for the year The Figure shows the highest, median, average (mean), and lowest forecasts by the panel. A lower median than mean indicates that most forecasts are in the lower part of the range, while a higher median than mean indicates that most forecasts are in the higher part of the range. While the wide range within most forecasts is evident, many are not very different from Again real GDP forecasts do not reflect the unexpected growth in GDP of 2015, because they were made without the knowledge of the 2015 figures released by ABS on 2 March Unemployment is forecast to remain similar to We maintain that the outlook for the economy is better than forecasts would indicate, given the GDP growth above forecast for 2015, and the slightly improved rate of unemployment in particular. 75 OECD 2016 Interim Economic Outlook 18 February accessed 14 March IMF Article IV consultation, Country Report no. 15/274 p.4, 77 Source: The Economist, 5 March Available from: economist-poll-forecasters-march-averages. The forecasters included in the poll are Bank of America, BNP Paribas, Citigroup, Commerzbank, Decision Economics, Deutsche Bank, Economist Intelligence Unit, Goldman Sachs, HSBC Securities, ING, JPMorgan Chase, KBC Bank, Morgan Stanley, RBC, RBS, Schroders, Scotia Capital, Société Générale, Standard Chartered, and UBS gm5f75.html, Peter Martin, 30 January 2016 accessed 13 March The panel are Stephen Anthony, David Bassanese, Paul Bloxham, Chris Caton, Andrew Charlton, Bill Evans, Warren Hogan, Shane Oliver, Su-Lin Ong, Alan Oster, Michael Workman, Mardi Dungey, Renee Fry-McKibbin, Steve Keen, Guay Lim, Jakob Madsen, Bill Mitchell, Neville Norman, Nigel Stapleton, Saul Eslake, Nicki Hutley, Stephen Koukoulas, Richard Robinson, Shane Garrett, Tom Skladzien, Julie Toth. ACTU Submission to the Annual Wage Review Page 74

76 Figure 43: Forecasts of various indicators by the SMH Business Day Economic Survey, January 2016 Unemployment rate, % of workforce Sydney home prices, growth % Housing investment, growth % Household spending, growth % Australia Nominal GDP, growth % World GDP, growth % US GDP, growth % China GDP, growth % Australia GDP, growth % RBA cash rate Dec 2016, % Wage price index, growth % Underlying inflation, % CPI, growth % Bus investment, Non-min, growth, % Terms of trade change, % Per cent Highest Median Average Lowest Source: SMH Business Day survey, published 30 January and ACTU calculations The outlook for the labour market 204. The RBA indicates that it is possible that the recent strong growth of employment contains information about the economy not apparent in the national accounts data. Were such strength to be sustained, the unemployment rate could decline more quickly than forecast. 79 We posit that the around 0.5 percentage points higher than anticipated GDP growth for 2015 and the 79 RBA 2016 Statement on Monetary Policy, Feb., p.64. ACTU Submission to the Annual Wage Review Page 75

77 slightly lower unemployment rate towards the end of 2015 indicate that the unemployment rate is likely to keep improving through 2016 and The Reserve Bank of Australia s projections indicate that the unemployment rate will fall to around 5.7% to 5.8% by end However its 70% confidence interval ranges from around 5.0% to 6.4%. 80 The OECD s most recent forecast in November 2015 was of a 6.2% unemployment rate for Australia in the fourth quarter of 2016, falling to 6.0% by the fourth quarter of 2017, yet its forecast in November 2015 for end 2015 had been slightly pessimistic at 6.1%. 81 The IMF forecast an average unemployment rate in 2016 of 6.1% prior to the above forecast actual result for 2015, falling to an average of 6.0% for The labour market has shown unanticipated improvement in that employment has grown 298,000 or 2.6% in the year to January 2016, twice as fast as the previous year as indicated in the chapter on The state of the labour market, and is forecast to continue to grow by the RBA The ratio of unemployed persons per vacancy has fallen to around four according to ABS data while the participation rate has improved At the same time the ABS measure of job vacancies has increased for two consecutive years now, by 11.8% in the year to November 2015, up from an increase of 7.8% the previous year, seasonally adjusted (the latest available data) 84. The trend increase is 11.6% for the year to November 2015, up from 6.6% the previous year. The data is based on a survey of businesses The number of job advertisements (as measured by the ANZ series 85 ), including internet and newspaper has grown by 8.2% over the year to February 2016, seasonally adjusted. In contrast with the ABS data this was slightly lower than the previous year s growth of 9.8%, but still healthy. The trend measure for the year to February 2016 at 9.9% was only just less than the previous year at 10.1%. Based on previous experience, the growth in job advertisements, can be taken as an indication that employment will continue to grow As indicated in the previous Chapter, the unemployment rate has fallen slightly and the expectation is that it is unlikely to worsen given the strength of other macroeconomic indicators There is cause for optimism that the pace of economic growth and the state of the labour market will improve over the remainder of 2016 and into Even if this is not the case, the minimum wage increase we propose is warranted to improve the conditions of those with low pay. 80 RBA 2016 Statement on Monetary Policy, Feb., Chart 6.5 p OECD Economic Outlook No 98 - November IMF Article IV consultation, Country Report no. 15/274 p RBA 2016 Statement on Monetary Policy, Feb., p ABS Cat ANZ Australian Job Ads ACTU Submission to the Annual Wage Review Page 76

78 RELATIVE LIVING STANDARDS AND THE NEEDS OF THE LOW PAID 212. The relative living standards of workers reliant on minimum wages declined for many years throughout the 1990s, 2000s and early 2010s. They declined through periods of economic boom and slowdown, and declined under the AIRC and AFPC and FWA/FWC In the last two and a half years the minimum wage bite has flattened out and this is due to falling wages at the top in resource based industries rather than an improvement in the real minimum wage relative to the average. The $30/3.9% increase we seek to minimum wages in this Review would stop any further decline in the relative living standards of low paid workers and would help to restore some lost ground If our claim were awarded in full, and the average weekly ordinary-time earnings of full-time adults (AWOTE) increases by 1.6% this year the same as for 2015 (compared with 2.8% in 2014), the NMW would increase from 43.8% to 45.1% of average full-time earnings. This would still be less than it was more than five years ago, at August This would remain below the 45.7% minimum wage bite of mid-2009, just before the Fair Work Act came into effect If our claim was awarded and AWOTE growth increased by 1.8%, then the minimum wage bite would increase to 45.0%. If AWOTE growth picks up to 3.0%, the minimum wage bite would increase to 44.4% Table 7 provides a more complete range of projections of what the minimum wage bite would be under different combinations of growth rates in the NMW and AWOTE in ACTU Submission to the Annual Wage Review Page 77

79 Table 7: Minimum wage bite under different combinations of NMW/AWOTE growth in 2016 AWOTE growth in year to November, per cent $ NMW increase % NMW increas e $ $ $ $ $ $ $ $ $ $ $ $ $ $ Awarding our claim in full is necessary to begin to improve low-paid workers relative living standards. The size of the improvement would be modest, but important. Reversing the decline in relative living standards 218. Minimum wages have fallen sharply as a proportion of average full-time earnings in the past few decades. While Average Weekly Ordinary Time Earnings (AWOTE) for adults have risen more slowly than GDP, by 34% between 1997 and 2015, the minimum wage (NMW) has risen by only 13% over the eighteen years, as shown in the next figure. 86 By contrast real GDP has risen 85% over the same period, more than twice as much as AWOTE and more than six times as much as the NMW. 87 Both the NMW and AWOTE have seriously lagged behind GDP in terms of growth over decades, much more so in the case of the NMW. There has been a substantial decline in the relative living standards of low paid workers over decades. 86 ABS 6302 and Bray, J Rob, 2013 Reflections on the evolution of the minimum wage in Australia: options for the future, paper commissioned by the Crawford School of Public Policy, ANU, ABS 5206 seasonally adjusted, and ACTU calculations. 87 ABS ACTU Submission to the Annual Wage Review Page 78

80 219. After trending slowly upward over a long period, real AWOTE has stopped increasing recently. AWOTE has not increased in real terms between August 2013 and November 2015, basically hovering around $1505 in real dollars of November The real NMW has increased a bare $3 in real terms to $657 dollars over the same period. This is highlighted particularly because the rate of inflation has been low for some years now, 1.7% over the year Figure 44: Average weekly ordinary time earnings and the minimum wage, 1997 to 2015, real 2015 dollars 1600 Real dollars, November 2015= November 2015 real AWOTE is 34% higher than 18 years earlier November 2015 real NMW is 13% higher than 18 years earlier 0 May 1997 Nov 1997 May 1998 Nov 1998 May 1999 Nov 1999 May 2000 Nov 2000 May 2001 Nov 2001 May 2002 Nov 2002 May 2003 Nov 2003 May 2004 Nov 2004 May 2005 Nov 2005 May 2006 Nov 2006 May 2007 Nov 2007 May 2008 Nov 2008 May 2009 Nov 2009 May 2010 Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012 May 2013 Nov 2013 May 2014 Nov 2014 May 2015 Nov 2015 real NMW real AWOTE Source: Average full-time earnings is AWOTE from ABS NMW All series deflated by the CPI (ABS 6401). ACTU calculations The NMW was 51.6% of the average weekly ordinary time earnings (AWOTE) of full-time adults in This has fallen overall to 43.8% at November The slight increase in the minimum wage bite since 2013 is mainly because real AWOTE has not increased above its previous high point at August 2013, while the NMW has increased a bare $3 overall in real terms to $659 dollars over the same period to November This is highlighted particularly because the rate of inflation has been low for some years now, 1.7% over the year In other words the nominal increases were particularly small. ACTU Submission to the Annual Wage Review Page 79

81 Figure 45: Minimum wage bite (ration of the NMW to average full time earnings), 1997 to Per cent May 1997 Nov 1997 May 1998 Nov 1998 May 1999 Nov 1999 May 2000 Nov 2000 May 2001 Nov 2001 May 2002 Nov 2002 May 2003 Nov 2003 May 2004 Nov 2004 May 2005 Nov 2005 May 2006 Nov 2006 May 2007 Nov 2007 May 2008 Nov 2008 May 2009 Nov 2009 May 2010 Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012 May 2013 Nov 2013 May 2014 Nov 2014 May 2015 Nov 2015 minimum wage, per cent of AWOTE Sources: Average full-time earnings is AWOTE from ABS NMW All series deflated by the CPI (ABS 6401). ACTU calculations The increases awarded by the Panel in the past three Reviews have not been sufficient to reverse the decline in relative living standards. This is shown in Table 8. As above, the minimum wage bite has flattened out because AWOTE increased so slowly in nominal terms with such low rates of inflation that it has not changed in real terms. Table 8: Minimum wage bite in selected years since 1997 Nominal NMW/C14 rate Nominal AWOTE Real NMW/C14 rate Real AWOTE Minimum wage bite (NMW as % of AWOTE) Dec-97 $ $ $ $1, %8 Dec-00 $ $ $ $1, % Dec-05 $ $1, $ $1, % Dec-09 $ $1, $ $1, % Dec-10 $ $1, $ $1, % Dec-11 $ $1, $ $1, % Dec-12 $ $1, $ $1, % Dec-13 $ $1, $ $1, % Dec-14 $ $1, $ $1, % Dec-15 $ $1, $ $1, % Source: NMW from Bray (2013). AWOTE from ABS CPI from ABS 6401, re based to November Real wages and minimum wage bite are ACTU calculations. ACTU Submission to the Annual Wage Review Page 80

82 222. The Panel s decisions in 2013, 2014 and 2015 stopped the erosion of the minimum wage. The gap between low paid workers living standards and those of other workers is large and had been growing for more than two decades, as shown above. Without the Panel stopping the decline in the minimum wage bite, we soon would have reached the level of other OECD countries with higher levels of earnings inequality and higher prevalence of low pay However, while the minimum wage bite has not fallen further in the past three years, it remains close to its lowest level on record, even with slow growth in the average wage which is keeping the bite up. The minimum wage bite is still over one percentage point lower than it was five years ago at the end of It is half a percentage point lower than it was at the end of 2009, after the AFPC decided not to increase minimum wages. It is 4.0 percentage points lower than in 2005 and 6.4 points below its 2000 level. The gap in living standards between workers reliant on minimum wages and other workers is very close to as high as it has been Minimum wages are substantially lower than they would be if the minimum wage bite had been held constant from some earlier time. Table 9 shows the difference between the current NMW and the value it would have taken if the minimum wage bite had been preserved from earlier periods. For example, if the minimum wage bite had remained at 47.8%, as in 2005, then the NMW would now be $ per week rather than $ per week, a difference of $ If the minimum wage bite had been preserved at its 2010 level of 44.7% then the NMW would be $13.64 higher than it is today. The effect of the slow growth in the average wage can be seen on the relativities of the minimum wage to the average wage in the last three years. It is not that the relative living standards of the low paid have improved, it is that the living standards of those on average wages have not improved much. Table 9: The effect of the falling minimum wage bite If the minimum wage bite was still as it was in Then the NMW would be Instead of A weekly difference of Dec-97 $ $ $ Dec-00 $ $ $96.15 Dec-05 $ $ $60.15 Dec-09 $ $ $7.64 Dec-10 $ $ $13.64 Dec-11 $ $ $7.64 Dec-12 $ $ $5.86 Dec-13 $ $ $7.36 Dec-14 $ $ $5.86 Source: NMW from Bray (2013). AWOTE from ABS 6302, ACTU calculations of wage bite. ACTU Submission to the Annual Wage Review Page 81

83 225. Our proposed increase in minimum wages is intended to improve the minimum wage bite, and contribute to recovering and improving the relative living standards of low paid workers It should not be the case that minimum wages adjustments result in either a falling, or roughly stable, minimum wage bite. In our view, the living standards of low paid workers are too low relative to other workers. Current minimum wage levels, in our view, provide neither a fair nor relevant safety net. The increase we propose would begin to reverse the erosion of relative living standards and restore fairness. This also has the advantage of arresting the drag on growth resulting from increased inequality. Relative earnings in the more award-reliant industries 227. Average and median earnings for Australian workers have grown significantly faster than the NMW and award minimum wages over the past decade. This divergence is not just due to rapid wages growth in the mining industry and other high-growth sectors Figure 46 shows that the NMW fell relative to average full-time earnings in all industries except three out of the eighteen over the decade to November The three industries where the minimum wage bite improved were Administrative and Support Services, Rental hiring and real estate and Other services, each by less than two and half percentage points Minimum wages have failed to keep pace with average earnings in the more award-reliant industries, such as Retail Trade and Accommodation and Food Services. Over the past decade, the ratio of the NMW to average full-time earnings in the Accommodation and Food Services industry fell by 4.3 percentage points, while in Retail Trade it fell 3.7 percentage points. ACTU Submission to the Annual Wage Review Page 82

84 Figure 46: Change in minimum wage bite between November 2005 and November Administrative and Support Services Rental, Hiring and Real Estate Services Other Services Manufacturing Wholesale Trade Arts and Recreation Services Financial and Insurance Services Retail Trade Education and Training Information Media and Telecommunications Electricity, Gas, Water and Waste Services Health Care and Social Assistance Professional, Scientific and Technical Services All Industries Public Administration and Safety Accommodation and Food Services Transport, Postal and Warehousing Construction Mining Percentage points Sources: NMW from Bray (2013). AWOTE from ABS 6302, ACTU calculations 230. Where the NMW has been closer to keeping pace with average wages, it may be due to the slow growth in wages in the particular sector as shown in Figure 47. The three industries with positive change in the minimum wage bite have very low or zero growth in real average wages over the ten years to November One of these is one of the four most award reliant, Administrative and support services. ACTU Submission to the Annual Wage Review Page 83

85 Figure 47: Change in minimum wage bite between November 2005 and November 2015, percentage points, and 10 year total growth in industry real AWOTE. % Administrative and Support Services Rental, Hiring and Real Estate Services Other Services Manufacturing Wholesale Trade Arts and Recreation Services Financial and Insurance Services Retail Trade Education and Training Information Media and Telecommunications Electricity, Gas, Water and Waste Services Health Care and Social Assistance Professional, Scientific and Technical Services All Industries Public Administration and Safety Accommodation and Food Services Transport, Postal and Warehousing Construction Mining growth in real average adult FT earnings, % Per cent change in minimum wage bite, percentage points Sources: NMW from Bray (2013). AWOTE from ABS 6302, cpi from ABS 6401, ACTU calculations 231. It is also clear that in Retail Trade and Accommodation and Food Services industries, the two largest employers of workers reliant on minimum wages, the gap has still grown between minimum wage workers and other workers. This is the case even in industries in which the lowpaid are typically employed. The exception is Administrative and support services where real AWOTE has grown 0.1% over the last ten years, and fallen 7.6% in the three years since November 2012, resulting in the wage bite moving up over that period. ACTU Submission to the Annual Wage Review Page 84

86 Figure 48: Real average weekly ordinary time earnings and NMW, May 1997 to November Real dollars May-1997 Nov-1997 May-1998 Nov-1998 May-1999 Nov-1999 May-2000 Nov-2000 May-2001 Nov-2001 May-2002 Nov-2002 May-2003 Nov-2003 May-2004 Nov-2004 May-2005 Nov-2005 May-2006 Nov-2006 May-2007 Nov-2007 May-2008 Nov-2008 May-2009 Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 Nov-2012 May-2013 Nov-2013 May-2014 Nov-2014 May-2015 Nov-2015 Retail Trade Administrative and Support Services All Industries Accommodation and Food Services Health Care and Social Assistance NMW Sources: NMW from Bray (2013). AWOTE from ABS 6302, cpi from ABS 6401, ACTU calculations Figure 49: NMW as a percentage of average earnings, May 1997 to November Per cent May-1997 Nov-1997 May-1998 Nov-1998 May-1999 Nov-1999 May-2000 Nov-2000 May-2001 Nov-2001 May-2002 Nov-2002 May-2003 Nov-2003 May-2004 Nov-2004 May-2005 Nov-2005 May-2006 Nov-2006 May-2007 Nov-2007 May-2008 Nov-2008 May-2009 Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 Nov-2012 May-2013 Nov-2013 May-2014 Nov-2014 May-2015 Nov-2015 Retail Trade Administrative and Support Services All Industries Accommodation and Food Services Health Care and Social Assistance Sources: NMW from Bray (2013). AWOTE from ABS 6302, cpi from ABS 6401, ACTU calculations ACTU Submission to the Annual Wage Review Page 85

87 232. It can be observed that real average wages have grown so slowly in the past few years that they are keeping the minimum wage bite level or even increasing it. However there is not a consistent pattern even across the award reliant industries. Where a slight increase in minimum wage bite has occurred, it cannot be argued to result in an improvement in relative living standards that would justify a smaller increase in the minimum wage. On the contrary it is a reflection of slides in relative living standards so great that it has impacted even on average wages, despite low inflation. In particular, the slide in real average wages has been in large employing, award reliant areas. This itself reflects the impact of the slow growth in the minimum wage in those award reliant areas. It also shows up in the widening gap between the average wages in those award reliant areas and other industry areas as shown in Figure 48. This constitutes little or no improvement of overall living standards in the more award reliant industries in absolute terms, and a worsening relative to the rest Awarding our claim in this Review would work to reverse the slow growth in minimum wages and the trend fall in the relative living standards of low paid workers, including other workers within their industries. Australia s minimum wage in international context 234. The Panel is required to take into account relative living standards. However, the statute specifies no particular level of relative living standards that should be deemed satisfactory, or against what they should be measured. There is nothing to suggest that the minimum wage bite is the key measure by which to judge relative living standards. As shown in the previous section, an increase in the minimum wage bite may in fact be the outcome of slower growth in average wages. This shows why it is important to obtain other measures of relative living standards. The minimum wage bites of other developed countries are also pertinent to relative living standards The Panel has expressed reservations about the relevance of international comparisons in previous Reviews. In its 2015 decision, the Panel restated that it remains our view that data about the Australian minimum wage bite relative to other OECD countries is of limited significance in evaluating the relative living standards supported by award wages We acknowledge the Panel s view regarding the relevance of international comparisons of minimum wages. We nevertheless respectfully submit that such comparisons do provide some relevant information for adjusting the Australian safety net. 88 [2015] FWCFB, [361] ACTU Submission to the Annual Wage Review Page 86

88 237. A falling minimum wage bite is very far from a necessary and inevitable consequence of globalisation and/or technological change. On the contrary as increasingly recognised in the literature, an increase in the minimum wage should encourage economic growth through its role in reducing inequality. A comparison of minimum wage bites across the OECD shows there is nothing inevitable about the level of the real minimum wage or the size of the bite. Relatively few OECD countries experienced a falling minimum wage bite over the past ten years (as shown in Table 10). Only Ireland s mean wage bite was bigger than Australia s, and Ireland suffered badly in the GFC. This suggests that there is nothing inevitable or necessary about a falling minimum wage bite A comparison of minimum wage bites across countries can also shed some light on the possible consequences of allowing Australia s bite to fall further. There is an inverse cross-country correlation between a country s minimum wage bite and its level of earnings inequality, as measured by the 50:10 ratio in wages. There is also a correlation between the minimum wage bite and the incidence of low pay, with countries that have lower minimum wage bites tending to have a greater share of their employees in low-paid work. Of course, many factors other than minimum wages can affect the level of inequality and the prevalence of low pay. Nevertheless, we submit that if Australia s minimum wage bite were to be allowed to continue to fall, then higher inequality and more prevalent low pay would likely result. International comparisons can be a useful cautionary guide In 2014, the Australian NMW was 43.1% of average earnings. Six countries had higher or equal wage bites. 89 While Australia s minimum wage bite is higher than those of most OECD countries, it has fallen dramatically Table 10 compares the minimum wage bite in OECD countries. The minimum wage bite is shown both as the minimum wage as a proportion of the average (mean) wage, and the minimum wage as a proportion of the median wage. The table also compares the real level of the minimum wage across OECD countries, converted to US dollars at Purchasing Power Parity (PPP). The table then shows the total change over the past ten years of the minimum wage bite (measured both ways) and the real minimum wage in PPP terms. 89 In some years, the OECD figures differ slightly from those obtained by dividing the C14/NMW rate by AWOTE from ABS The difference is never greater than a percentage point. The ACTU has used the OECD figures for international comparisons to ensure comparability. ACTU Submission to the Annual Wage Review Page 87

89 Table 10: Minimum wages in OECD countries Level in 2014 Change: 2004 to 2014 Minimum wage bite against mean, % Minimum wage bite against median, % Minimum wage, real $US ppp Bite (mean) - percentage points Bite (median) - percentage points Real level (USD PPP) - per cent Australia Belgium Canada Chile na na 29.8 Czech Republic Estonia France Greece Hungary Ireland Israel Japan Korea Luxembourg Mexico na 0.9 Netherlands New Zealand Poland Portugal Slovak Republic Slovenia na na 31.9 Spain Turkey United Kingdom United States Source: OECD Stat. Available from and Rates of change are ACTU calculations The minimum wage bite (as a proportion of the mean) in Australia fell 7.2 percentage points between 2004 and 2014, from 50.3% to 43.1%. Only Ireland, whose economy and wages suffered catastrophically in the GFC had a larger decline. Most OECD countries experienced an increase in their minimum wage bites over this decade, and many of these were recovering from the GFC. Australia s economy did not suffer as badly as most in the GFC, yet its minimum wage bite has fallen more than all except Ireland. Ireland and Turkey were the only countries with higher falls in the median wage bite. ACTU Submission to the Annual Wage Review Page 88

90 Figure 50: Minimum wage bite against mean in 2014 in OECD countries, per cent New Zealand France Slovenia Luxembourg Chile Belgium Australia Netherlands Israel Canada Hungary Poland United Kingdom Portugal Greece Slovak Republic Turkey Ireland Korea Estonia Spain Japan Czech Republic Mexico United States Per cent Source: OECD Stat. Available from ACTU Submission to the Annual Wage Review Page 89

91 Figure 51: Change in minimum wage bite of mean income, 2004 to 2014 Korea Poland Canada Hungary Japan United Kingdom New Zealand Portugal Slovak Republic Luxembourg United States Spain France Estonia Greece Israel Belgium Netherlands Czech Republic Mexico Turkey Australia -7.2 Ireland Source: ACTU calculations based on OECD Stat data Change in wage bite from 2004 to 2014, in percentage points Australia s minimum wage bite was, for a long time, the highest in the OECD, as indicated in the ACTU submission to last year s AWR 90. It has been allowed to fall for several decades, at the same time that the minimum wage bites in most OECD countries have risen. The result is that Australia is drifting towards the middle of the range of minimum wage bites for OECD countries. This is the case for both mean and median based wage bites Australia s minimum wage bite remains above those of many other countries including the UK and Canada, but the gap has been rapidly closing. This is because Australia s minimum wage growth has lagged while other countries are instituting increases in their minimum wages. This is despite more rapid growth in average wages in the countries recovering from the GFC. Recently average wages in Australia have grown even more slowly than its minimum wage, flattening out its wage bite, but its relativity with other OECD countries has still slipped Rather than being a leader in minimum wages as it has been, the Australian labour market would come to resemble those of some other OECD countries which have higher levels of earnings inequality, unless real minimum wage growth is sustained. 90 ACTU 2015 Submission to Annual Wage Review , 27 March, pp ACTU Submission to the Annual Wage Review Page 90

92 245. Moreover the OECD countries have shown an increasing interest in minimum wages. 91 Nine countries out of 34 OECD countries (26.5%) have introduced minimum wages since 1990, bringing the total with minimum wages to 25. Countries which have introduced minimum wages since 1990 include Czech Republic, Estonia, Germany, Hungary, Ireland, Poland, Slovakia, Slovenia and the UK The impact of the minimum wage on relative living standards depends on the taxes paid and transfers received at that wage, including income taxes, social security contributions, and in-work benefits. Taking account of the impact of these on the minimum wage bite in each country changes the ranking significantly. Australia s taxes and transfers leaves it with a net minimum wage bite of 47.7% which is five percentage points lower than its gross minimum wage bite. This re ranks the minimum wage bite measure enough to leave it just above the OECD average net minimum wage bite of 44.9%, with only two countries in between (Ireland and Czech Republic) A number of countries that have lower gross minimum wage bites than Australia (such as Japan and the UK) have higher net minimum wage bites. Average difference between gross and net wage bite is 2.1% whereas Australia s is 5.0%. The gross minimum wage in Australia has to do relatively more heavy lifting than in the average OECD country to bring up the wage bite after taxes and transfers The relative living standards of minimum wage workers in Australia are close to the OECD average, and below those of many comparable countries. Unlike in most OECD countries, the relative living standards of Australian minimum wage workers fell during the 2000s Mavromaras et al (2016) compared the real minimum wage increase from 2003 to 2014 across France, Australia, New Zealand, UK, Canada and the US, see Figure 52 below. 93 It found that the growth in the real minimum wages over that period was by far the lowest in Australia at 5.9%, as shown in the following figure. It was also found that France s minimum wage had exceeded Australia s since This is despite the greater impact of the GFC on France s economy. France and New Zealand also had higher mean and median minimum wage bites than Australia in Australia s median minimum wage bite was the only one which had declined over that period. 91 OECD Garnero, Andrea 2015 Minimum wages across OECD and EU countries presentation 15 September eiwdxlahvdp5qkhx2ed3uqfgggmae&url=http%3a%2f%2fwww.oecd.org%2fsocial%2ffocus-on-minimum-wages-after-the-crisis pdf&usg=AFQjCNHS8bK-Q9YTJGJH7McH02swCVzhww 92 OECD 2014, Employment Outlook 2014, p.68, update of estimates not available. Data from The OECD s calculations of net bites are for single adults without dependents. 93 Kostas Mavromaras, Peter Sloane and Rong Zhu 2016 Research report 1/2016 An international comparison of minimum wages and labour market outcomes, Fair Work Commission Research Commission Report 1/2016, p Mavromaras et al 2016, pp ACTU Submission to the Annual Wage Review Page 91

93 Figure 52: Total growth in real minimum wages, 2003 to 2014 (2014 US dollar PPPs) New Zealand 29.7 Canada 22.4 France 15.0 UK 12.5 US 10.6 Australia Source: Mavromaras et al (2016), p.18 Total real growth, per cent Minimum wages and inequality 250. The Panel stated in the AWR for that the evidence suggests that the forces for rising inequality have been subdued in the past few years. This reduces the work that needs to be done by the NMW and modern award minimum rates to protect the relative living standards of the low paid. 95 We hope to respectfully show in this section that inequality has continued to increase on trend. The recent apparent improvement in inequality was a specific circumstance related to the GFC, related to incomes from asset ownership falling at the top end Earnings inequality has risen in Australia over the past several decades, particularly during the 1990s and 2010s A key measure of earnings inequality relevant to Annual Wage Reviews is the 50:10 ratio this measures the ratio of median earnings to earnings at the 10 th percentile of the distribution. The higher this ratio, the more unequal is the bottom half of the earnings distribution. The 50:10 ratio among full-time non-managerial adult workers was 1.41 in 1990, then rose to 1.49 in 2000, then 1.57 in 2010 and 1.58 in The 50:10 ratio did not change between 2012 and 2014, 95 FWC 2015 Annual Wage Review [412] ACTU Submission to the Annual Wage Review Page 92

94 remaining at The 2014 data is the most recent available for this purpose, and has been discussed fully in the ACTU submission to the previous AWR Figure 53 and Figure 54 below show the earnings of full-time workers at the 90 th, 50 th (median), and 10 th percentiles, as well as the ratios between these levels of earnings. Figure 53: Real wages for full-time non managerial adults Real 2014 $/week 2500 Figure 54: Measures of earnings inequality among full-time non-managerial adult employees Ratio th percentile : Median : th percentile : Source: ABS 6306, various years. Note that the earnings figures from 1975 to 2012 (inclusive) pertain to full-time nonmanagerial adult employees. The 2014 figures are for full-time non-managerial employees paid at the adult rate Earnings inequality based on the 50:10 ratio remained at a record high level, but it did not rise from 2012 to This is partly because average wages grew so slowly, which in turn led the minimum wage bite to flatten. The prevailing inequality which has worsened over recent decades still deserves to be ameliorated through increasing the minimum wage The correlation between a lower minimum wage bite and higher 50:10 earnings inequality also holds across OECD countries. 98 This is convincing because the institutional and economic environment varies widely amongst countries and the minimum wages and average wages are established basically independently in each country. It is clear that a smaller minimum wage bite is associated with greater earnings inequality It is important to note that inequality of equivalised disposable household income remains high by historical standards, high by the standards of other OECD countries, and has risen particularly among the groups most relevant to Annual Wage Reviews Based on the Gini coefficient, equivalised household disposable income is less equally distributed in than 20 years earlier. This displays the continuation of a widely 96 The figure for 2014 pertains to full-time non-managerial employees paid at the adult rate, rather than full-time nonmanagerial adult employees. 97 : ABS 6306, ACTU 2015 Submission to Annual Wage Review , 27 March, pp OECD stat and ACTU calculations, ACTU 2015 Submission to Annual Wage Review , 27 March, pp ACTU Submission to the Annual Wage Review Page 93

95 recognised trend common across countries. Because of the way the Gini coefficient is calculated, it puts a relatively high weighting in importance on the middle sector of the income distribution relative to either end of the income distribution. That is it is less sensitive to changes in the spread between the lower and upper ends than it is to changes in the middle parts of the distribution. It tends to display cyclicality as income shifts around the income distribution over time The Gini coefficient in was 0.302, rising to by The Gini coefficient fell a little over the GFC period and after, between and , before rising in the most recent data of almost back to the level of (0.336). Equivalised household disposable incomes remain more unequal in than at any time prior to for which data is available. Based on the Gini coefficient for equivalized household disposable income on trend, it is a furphy to argue that income distribution has become more equal. Figure 55: Gini coefficient, a measure of inequality where higher is more unequal, for equivalized household disposable income distribution in Australia to Value Gini coefficient Source: ABS Equivalized disposable household income standardizes as if a household s after tax and transfers income were that of a single individual The increase in the base rate of pensions (including the Age Pension and Disability Support Pension) contributed to the decline in inequality in the post-gfc period. A fall in incomes from assets (such as dividends) also contributed. Both of these factors are unrelated to the labour market and working people. We cannot expect taxes and transfers to perform the role of reducing inequality which is best served by an increase in the minimum wage. 99 The Gini coefficient is a measure of inequality that takes the value 0 when income is distributed equally among all members of the population and the value 1 when one member of the population receives 100% of the income. A higher value of the coefficient indicates a higher level of inequality. ACTU Submission to the Annual Wage Review Page 94

96 260. The increase in income inequality over the past decade is even more apparent if lone person working-age households are examined. It is the living standards of these households that the Panel has indicated are most relevant to Annual Wage Reviews. Inequality has also grown sharply among households for which the main source of household income is wages and salaries. This is shown in Table Inequality in disposable incomes among lone person households aged rose by 16.5% between and For lone person households aged 45-64, inequality rose by 18.1%. For households (of all ages and family types) in which the main source of income was wages and salaries, inequality rose by 15.9%. Table 11: Inequality of equivalised disposable household incomes (Gini coefficient) for particular household types Change: to 13-14, % Lone person aged Lone person aged Lone person aged All household types, all ages - main source of household income is wages and salaries Total Source: ABS 6523, Change over time is an ACTU calculation To the extent that levels of inequality can be compared over time 100, inequality has increased again by after a slight fall in the post-gfc period. This was particularly the case for households that are more directly relevant to the Annual Wage Review, notably lone person households of working age and households for which the main source of income is wages and salaries Associate Professor Roger Wilkins of the Melbourne Institute carefully examined the evidence on inequality in Australia. He concluded among other things, that changes to income taxes and to government benefits acted to increase income inequality over the decade Both HILDA and the ABS data show that inequality was higher in 2011 than at any point in the 2000s prior to The ABS data shows that inequality has risen particularly among lone person households and working households. 100 Caution should be exercised when comparing Gini coefficients over time, particularly prior to , due to changes to the ABS definition of income and to its survey method. The ABS has improved its methodology over time and harmonised its definition of income with the international standard. This means that the recent estimates of the Gini coefficient are more likely to be accurate than earlier estimates. 101 Wilkins, R. 2013, Evaluating the Evidence on Income Inequality in Australia in the 2000s, Working Paper No. 26/13, Melbourne Institute Working Paper Series, Melbourne Institute, University of Melbourne, Melbourne, p.55. Available from: [Accessed 25 March 2015]. ACTU Submission to the Annual Wage Review Page 95

97 265. The Senate Community Affairs References Committee in its report of December 2014 into Bridging our growing divide: inequality in Australia The extent of income inequality in Australia found that The minimum wage remains an important mechanism for low income people to avoid poverty and participate in society. The evidence shows that the minimum wage makes a significant difference to income inequality and rates of poverty. It is important that the minimum wage is set at a level that reflects the rising cost of living in Australia. 102 It reported that the compensation package for an ASX 200 CEO is 145 times that of a worker on the minimum wage Rising inequality is a matter of serious concern. The Panel is required to take relative living standards into account, for good reason. A declining minimum wage bite exacerbates earnings inequality and is associated with higher incidence of low pay. If other things are equal, higher inequality of earnings among workers generally translates into higher inequality of incomes among households Higher inequality is a significant concern in and of itself. The maintenance of a fair safety net that takes into account relative living standards is not consistent with high and rising levels of inequality. Higher inequality is also undesirable for the potential effect it may have on health, social cohesion, and the economy. There is also a growing consensus that inequality can be harmful to economic growth. The research evidence that inequality has a negative impact on growth is mounting, including in more studies from the IMF 104 and the OECD Awarding our claim in this Review will help improve the earnings distribution. It will put downward pressure on earnings inequality and income inequality, particularly among working households. This is a social and economic imperative. The needs of the low paid 269. Among other considerations, the Panel is required to take into account the needs of the low paid. 102 Senate Community Affairs References Committee 2014 Bridging our growing divide: inequality in Australia The extent of income inequality in Australia, December, p.xvii. 103 The Senate Report 2014 Bridging our growing divide at p.4 took the figure for CEO pay from the most recent Australian Council of Superannuation Investors Survey. 'CEO Pay in ASX 200 Companies', 13th Annual ACSI Survey of Chief Executive Remuneration, September 2014, p Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Frantisek Ricka, Evridiki Tsounta, 2015, Causes and Consequences of Income Inequality: A Global Perspective IMF Staff Discussion Note, June OECD 2015 In It Together: Why Less Inequality Benefits All, May 21, ACTU Submission to the Annual Wage Review Page 96

98 270. In 2015, the Panel awarded 2.5% increase in minimum wages. Over the year to December 2015, CPI inflation was 1.7%, while the employee Living Cost Index (LCI) increased by 1.1%. 106 The increase in minimum wages awarded by the Panel therefore resulted in a modest increase in real wages for low paid workers. Such workers are more able to meet their needs than they were prior to the Panel s 2014 decision, a fact that we welcome The Reserve Bank of Australia (RBA) forecasts CPI inflation of 2-3 per cent over the year to the December 2016 quarter. 107 Taking the midpoint of this range, nominal wages growth of at least 2.5% would thus be needed in order to prevent a fall in real wages According to these measures of inflation, the ability of low paid workers to meet their needs improved slightly last year. However, this improvement does not mean that low paid workers are able to meet their needs satisfactorily. The extent to which they are able to meet their needs is difficult to measure directly, but can be inferred from information such as poverty rates and measures of financial stress and deprivation We agree with the Panel s conclusion regarding poverty lines in the Review: Poverty entails an inability to buy the material resources required to meet basic needs. We accept 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 Obtaining an income in excess of poverty levels does not necessarily indicate that low-paid workers needs are being met to a satisfactory extent. Clearing the poverty line is necessary, but not sufficient, for a fair and relevant safety net of minimum wages People above the measured poverty line may still experience poverty if the poverty line is measured relative to median income. When median income grows more slowly or falls then those who are above the poverty line also fall behind. Financial stress and deprivation measures are also imperfect measures of the degree to which needs are not being met. The absence of deprivation among workers (e.g. if workers do not have to go without meals due to lack of money) does not necessarily indicate that their incomes are sufficient to meet a socially acceptable standards. These measures are nevertheless useful, when viewed in conjunction with other information about low-paid workers living standards The 2014 research by academics at the Bankwest Curtin Economics Centre (BCEC) at Curtin University as indicated in the ACTU submission to last year s AWR found that 6.4% of single- 106 LCI is concerned with measuring the impact of changes in prices on the out-of-pocket expenses incurred by households to gain access to consumer goods and services. The biggest difference with cpi is that LCI accounts for housing costs in terms of actual cash outlays incurred, and may better reflect changes in purchasing power at lower income levels Reserve Bank of Australia 2016, Statement on Monetary Policy: February 2016, RBA, Sydney, p FWC 2015 Annual Wage Review [383] ACTU Submission to the Annual Wage Review Page 97

99 earner households were in severe poverty, more than twice that for single-earner couples and a third higher than the overall working population % of single earner, one adult households are below the 60% of median income poverty line (based on equivalised disposable household income after housing costs). 13.5% of single earner, one adult households are below the 50% of median income poverty line and 8.8% are in significant poverty, i.e. below the 40% line The BCEC found that wages in and of themselves do not prevent income poverty entirely. The high proportion of households that are reliant on wages and salaries as their main source of income across the poverty depth groups indicates the existence of a working poor subpopulation. 111 Single person households in poverty are more likely than couple households to experience forms of deprivation such as going without meals We note that the Panel concluded in its decision in the Review that the appropriate reference household for the purposes of setting minimum wages is the single person household, rather than the couple household with children. 113 If this is the case, the BCEC report s findings about the extent of poverty and deprivation among single person households should be of significant concern. It shows that there is a substantial minority of workers whose needs are not being met to an adequate extent The FWC Statistical Report also contains a range of relevant information about financial stress, deprivation and hardship. Tables 10.1 and 10.2 of the Statistical Report shows that financial stress generally increased in 2014 compared with 2013 particularly for the low paid: a. Among all employee households, 15.8% experienced some form of financial stress up from 14.9% the previous year, 3.1% experienced moderate stress up from 2.7%, and 0.8% experienced high stress compared with 0.9% the previous year; b. Among low-paid employee households, 31.8% experienced some form of financial stress, up from 31.1% the previous year, 8.4% experienced moderate stress up from 7.1% and 1.9% experienced high stress down from 2.1% Financial stress is much more common among low-paid employees than other employees. The table also shows that the incidence of financial stress has not fallen for the low paid since 2011 at 31.8%, whereas it has fallen slightly for total employees, from 17.4% in 2011 down to 15.8% in This indicates the low paid are in a worse position relative to other employees and inequality is widening. 109 Cassells, R., Dockery, M. and Duncan, A. 2014, Falling Through the Cracks: Poverty and Disadvantage in Australia, Focus on the States Report Series, No. 1, October, Bankwest Curtin Economics Centre, Curtin University, Perth [BCEC], p BCEC, p BCEC, p BCEC, p FWC 2015 Annual Wage Review [337] ACTU Submission to the Annual Wage Review Page 98

100 281. Table 10.3 of the Statistical Report shows that 18.5% of low-paid adult employees would have been unable to raise $2000 in a week for something important in This has increased from the 16.8% in 2002, but down slightly from the 19.1% in 2010 just after the GFC. This compares to 10.2% of all adult employees, again up from 2002 but down slightly from 2010 after the GFC. 19.4% of low-paid adult employees couldn t pay electricity, gas, or telephone bills on time, which has also risen over time Table 10.4 of the Statistical Report shows that deprivation among households with low-paid adult employees is high and has risen over time, also reported in the ACTU submission to the AWR for At % of households with only low-paid adult employees could not afford a holiday for at least one week a year (up from 33.7% in ). 31.5% of low-paid worker households could not afford a night out once a fortnight (up from 24.8% in ). 10.9% of low-paid worker households could not afford friends or family over for a meal once a month (up from 5.6% in ). 19.6% of low-paid worker households could not afford leisure or hobby activities (up from 11.1% in ) The increase we propose in this Review would increase real wages, and thus improve the ability of low paid workers to meet their needs. It would ensure that low paid workers enjoy some benefits from rising productivity growth, after a long period in which productivity has risen much faster than real minimum wages. Securing a fair share of productivity growth 284. Low paid workers should share in the benefits of productivity growth. This has not occurred over the past decade, with the real NMW lagging behind productivity growth at the total economy level and in the more award-reliant industries. The labour share of income has fallen, both at the total economy level and in the more award-reliant industries. We submit that the restrained growth in real minimum wages has played a part in this fall in the labour share. It has only flattened out recently due to the fall in resource related asset income at the top Submissions to previous Reviews by some employer organisations and state governments have suggested that real wage maintenance would be a sufficient outcome that would satisfy the criteria the Panel must take into account. We disagree, as did the Panel in its , in which it said the requirement to take into account relative living standards and the needs of the low paid supports an increase in the NMW and modern award minimum wages. 114 The maintenance of real wages is necessary, but not sufficient, to maintain a fair and relevant safety net Merely maintaining real wages would deny low-paid workers the benefits of productivity growth, and would see their earnings and living standards decline relative to those of other workers. This is not consistent with the minimum wages and modern awards objectives of the Act. 114 FWC 2015 Annual Wage Review [417] ACTU Submission to the Annual Wage Review Page 99

101 287. We reject mere real wage maintenance as inconsistent with the minimum wages and modern award objectives. We do not propose an alternative mechanistic rule for minimum wages adjustment, such as increasing minimum wages by inflation plus productivity growth. The factors that the Panel must take into account are too broad and varied, and require too much judgement, for a rule to be used to guide the Panel s decision making process in Annual Wage Reviews. We also advocate a medium-term approach that does not give undue emphasis to short-term fluctuations in inflation, productivity growth, or other factors While we do not advocate a predetermined rule for minimum wages adjustment, we strongly submit that low paid workers should share in the benefits of productivity growth. This entails minimum wages increasing in real terms over time. If average real wages are rising roughly at the same pace as productivity growth, preserving relative living standards would require real minimum wages to rise in line with labour productivity. Restoring some of the lost ground in relative living standards would require some increase in real minimum wages in excess of labour productivity growth In 2015, the Panel s decision to increase nominal minimum wages by 2.5% reduced the share in productivity growth to low paid workers from that of the previous year when 3% was awarded. The real NMW rose by 1.2% deflated by cpi. This came after many years in which labour productivity rose much faster than real wages for low paid workers. The increase in minimum wages we propose in this review would ensure that some of this lost ground is restored Figure 56 shows various index measures of annual labour productivity increase, real labour costs and the real minimum wage. It is clear that the real NMW has increased much more slowly than labour productivity. ACTU Submission to the Annual Wage Review Page 100

102 Figure 56: Various index measures of labour productivity, real labour cost and the minimum wage, 1995 to Index GDP per capita, real, index GDP per hour worked: Index ; GDP per hour worked market sector, real Real unit labour costs: Index ; AWOTE real real NMW index Sources: ABS 5204, 6302, 6401, NMW from Bray (2013), and ACTU calculations 291. The real value of the NMW has not kept pace with labour productivity even within the more award-reliant industries. This is shown in Figure 57. Note that the industry-level productivity statistics pertain to financial years, the most recent of which is and thus does not cover the period in which the Panel s 2015 decision came into effect. GVA stands for gross value added, a measure of output at the industry level. GVA per hour worked measures labour productivity at the industry level. It can be seen that labour productivity in the Retail trade and Health and support services industries grew substantially faster than labour productivity across the total economy in the decade to , while labour productivity in the Accommodation and food services and Administrative and support services industries faster than the total economy figure up to June 2008 then grew more slowly. All award reliant industries grew substantially faster over the twenty years to 2015 than the real NMW. Low-paid workers have not shared in the benefits of productivity growth. ACTU Submission to the Annual Wage Review Page 101

103 Figure 57: Labour productivity growth in the more award-reliant industries, compared to increases in the real NMW, indexes Index Retail trade Administrative and support services Real NMW index Accommodation and food services Health care and social assistance GROSS DOMESTIC PRODUCT Source: Real GDP per hour worked and industry gross value added per hour worked are from ABS 5204, re-based to equal 100 in by the ACTU. NMW from Bray (2013). GDP chain price index from ABS Real NMW calculated by the ACTU Based on ABS estimates of labour s share of income for its productivity estimates, labour s share in the total economy has fallen on trend since , flattening out or rising slightly since as a result of the impact of the GFC on capital income, rather than due to wage improvements. Labour s share in the more award-reliant industries has fallen on trend since , even though these are labour intensive industries. The Panel noted this trend in its decision in the Review, observing that over the longer term, growth has benefited capital disproportionately to labour and the labour share of income has declined materially over the past two decades. 115 The fall in the labour share reflects the failure of average real wages 116 (in output price terms) to keep pace with labour productivity growth, labour s share of income falls The long term fall in the labour share in various sectors is shown in Figure 58. In , the labour share in the market sector was 2 percentage points lower than in The labour share also fell by 2 percentage points in the Accommodation and Food Services industry and by one percentage point in the Retail Trade industry. 115 [2014] FWCFB 3500, [24] 116 Including non-wage compensation such as superannuation contributions. ACTU Submission to the Annual Wage Review Page 102

104 Figure 58: Labour s share of income in the market sector and in the more award-reliant industries Share of income in the sector Retail Trade Accommodation and Food Services 12 market industries 16 Market Sector industries Source: ABS We submit that restraint in minimum wage increases has played a role in the failure of average wages growth to keep up with average productivity growth. A broad range of factors, including technological change and globalisation, asset price movements and increasing firm concentration have contributed to the trend decline in the labour share. But institutional changes in the labour market, including the fall in union density and the fall in the relative value of minimum wages, are likely to have made a major contribution to this undesirable trend. The relevance of taxes and transfers 295. In its decision, the Panel said while we pay particular attention to the impact of our decision on the needs of low-paid single adults, we also note and take into account the combined effects of changes in minimum wages and the tax-transfer system on the needs of other low-paid household types, including those with dependent children The ACTU recognises that the Panel has a statutory obligation to establish and maintain a fair safety net of minimum wages. It is appropriate for it to take taxes and transfers into account when doing so. However we would submit that the tax and transfer system cannot be relied upon to alleviate the impact of small increases in the minimum wage. 117 FWC 2015 Annual Wage Review [337] ACTU Submission to the Annual Wage Review Page 103

105 297. The increasingly unequal household income post taxes and transfers is shown in Figure 59, based on the most recent ABS data. Equivalized household disposable (after taxes and transfers) income is based on standardizing household disposable income across different household structures so that it is represented by that of a single person household, otherwise the distribution of household income would be affected by household size and composition. The quintiles divide the equivalized household income range into fifths, from the fifth of households with the lowest income through to the fifth with the highest income Figure 59 below shows that after tax and transfer income has not become more equal over the last twenty years. Whereas the real disposable income average in each of the middle three quintiles has each risen by 58% to 60% over the twenty years, the real disposable income of the top quintile has risen by 80%. The middle three quintiles are those most dependent on wage income, whereas the top income quintile is more dependent on income from profits. The second bottom and middle quintiles are more likely to be award reliant based on the income range. The tax and transfer system has clearly not served to alleviate widening inequality across the income distribution over time, arising from the slow growth in wage relative to profit income. Figure 59: Household equivalized disposable income, real, to , constant dollars 2,250 2,000 1,750 Constant Australian dollars 1,500 1,250 1, Lowest quintile Second quintile Third quintile Fourth quintile Highest quintile Source: ABS Income standardized as if for a single person household The ABS also provides data on the distribution of gross and disposable income distribution, before equalizing the household structure. In this data larger households are more likely to have higher incomes and so are likely to be more prevalent in the higher quintiles. Figure 60 shows the difference between gross and disposable incomes for It shows that while there is ACTU Submission to the Annual Wage Review Page 104

106 some redistribution through taxes and transfers, in fact this is quite limited. It serves to move the ratio of top to bottom quintile incomes from 11.5 to 8.6. Even if the top quintile households have five people in them and the bottom only one, they are left with much higher disposable incomes than the lower quintiles. The redistribution due to taxes and transfers has also become more limited over time. It is wage growth, and in particular the minimum wage, which drives income distribution. Figure 60: Household gross and disposable income, , current dollars 5,500 5,000 4,500 4,000 Income, dollars 3,500 3,000 2,500 2,000 1,500 1, Lowest Second Third Fourth Highest Gross income Disposable income Source: ABS Income standardized as if for a single person household The level of wages, and the minimum wage in particular, remains the key driver of standards of living and address of inequality in any economy. This is recognised in an increasing literature on the subject. It is an abrogation of responsibility for submissions to call for a reduction in regulation of wages and then to seek address through the tax and transfer system In any case the Australian tax and transfer system is increasingly failing to address the widening distribution of income to which lagging wage growth has contributed. Policy cannot be relied upon to address this. For instance measures such as an Earned Income Tax Credit (EITC) would in effect transfer income from lower income wage earners via taxes, towards profits, through subsidising wages. They are not a substitute for minimum wages. This would not raise the living standards of low paid workers. ACTU Submission to the Annual Wage Review Page 105

107 302. While we accept the Panel s decision to focus on single person households, we strongly submit that the Panel should be consistent in its application of this principle. If cuts to transfer payments affecting families are not to be taken into account, then neither should the benefit that some lowpaid workers receive from living in households with others. To take into account the financial benefit received by some low-paid workers from living with others, but to ignore the effect of reduced transfers on such low-paid workers living standards, is inconsistent and in our view unacceptable We also submit that when examining evidence of financial stress, deprivation and poverty, the Panel should put most weight on indicators pertaining to single person households. We showed in a previous section of this submission (at paragraph 276 onwards) that single person households experience higher levels of stress, deprivation and poverty. The effect of taxes and transfers on living standards 304. The gap between minimum and average full-time wages is smaller when taxes and transfers are taken into account, and this has been consistently so historically. The net minimum wage bite has fallen by 8%, nearly as much as the gross bite at 9.9%, over the twenty years to The sharp decline in the living standards of minimum wage workers relative to workers on average full-time earnings is clearly evident whether the comparison is done on a pre-tax or posttax basis. The tax system has not offset the decline in relative living standards over a long period. The effect of the cost of working on living standards 305. The costs of working are typically higher for low-paid workers, as a proportion of their weekly wage. The costs of childcare related to work are the biggest cost of working for both males and females, and these are bigger for award reliant males than females, and higher overall for award reliant employees. The Fair Work Commission s Australian Workplace Relations Survey asks employees about the cost of childcare related to work, the results of which are in Table 12.1 of the FWC Statistical Report and summarised in Table 12, below. Table 12: The cost of working as a percentage of employee s own weekly gross wage, per cent Male Female Total Award-reliant employees 16.3% 18.9% 18.3% Non-award reliant employees 13.3% 21.1% 17.5% Source: FWC Australian Workplace Relations Survey, as reported in the FWC Statistical Report , table The current childcare payment means testing regime makes non award reliant female costs slightly higher than award reliant females. Apart from that, the higher cost of working for low-paid 118 ACTU 2015 Submission to Annual Wage Review , 27 March, p.58. ACTU calculations. Minimum wage rates from FWC/AFPC/AIRC decisions. AWOTE from ABS Tax rates and thresholds from the ATO. ACTU Submission to the Annual Wage Review Page 106

108 workers (relative to their incomes) means that the gap in living standards between low-paid workers and other workers is bigger than it appears based on a comparison of gross wages. ACTU Submission to the Annual Wage Review Page 107

109 EQUAL REMUNERATION FOR MEN AND WOMEN WORKERS 307. The Panel is required to take into account the principle of equal remuneration for work of equal or comparable value. 119 This requires that minimum rates of pay for different occupations and classifications are the same, where those occupations and classifications perform work that is of equal value The Panel should also have regard to gender pay inequity more broadly. There is a large gap between the earnings of men and women. A fair increase in minimum wages can contribute to more equal remuneration between workers who are paid minimum rates and those who perform work of equal value who have the capacity to bargain Out of the 1.86 million award only workers, million (57.5%) are women. Increasing minimum wages has the mechanical effect of reducing the gender pay gap The gender pay gap is conventionally measured using the average weekly ordinary time earnings (AWOTE) of full-time adults. While we view AWOTE as the most appropriate basis for calculating the gender pay gap, other wage measures can also provide useful information about the extent and nature of gender pay inequity. Table 13 shows the gender pay gap calculated using wage measures from data released over the last year by ABS from two different ABS surveys. Whichever measure is used, women are paid less on average than men. Earnings measure Average ordinary time earnings Average total earnings Average total earnings Table 13: Gender pay gaps using different earnings measures Weekly or hourly Weekly Weekly Weekly Employees covered Full-time adults Full-time adults All employees Source and date ABS 6302, November 2015 ABS 6302, November 2015 ABS 6302, November 2015 ABS 6333, August 2014 Male earnings Female earnings Gender pay gap Mean weekly Weekly Employees in main job earnings Source: ABS 6302, ABS GPG is an ACTU calculation. ABS EEBTUM Cat 6310 ceased at August 2013 data, and some series were released in a new Cat 6333 in December 2015 for August The gender pay gap based on AWOTE, the conventional measure, was 17.7% as at November Apart from last year when the gap was 18.8% at November 2014, this is the highest it has been since it was 17.9% at November 1988, 28 years ago. It has basically risen on trend since August 2004 when it was 14.7%. It is of significant concern to the ACTU that the gender pay gap 119 Fair Work Act 2009 (C th), s.284(1)(d) ACTU Submission to the Annual Wage Review Page 108

110 is at its highest level in nearly three decades. The view is that deregulation has not assisted relative gender earnings. The minimum wage is imperative to improving gender pay equity The following figure shows the gender pay gap by comparing the shares of total employment for full time female employees at each pay range with the shares of total employment for full time male employees (excluding OMIEs) at the corresponding pay range. For the lower pay ranges, up to $1,400 per week, there is a bigger share of female employment than male employment at each pay range. After $1,400 per week the share of male employment vastly exceeds the share of female employment. 23% of full time male employees earned over $2000 per week, while only 9.8% of females earned more than that One in eight full time male employees earns less than $800 per week, whereas 1 in 5.6 full time female employees earns less than $800 per week. This strongly suggests that female employees are more low paid and award dependent than male employees. The pattern permeates through the rest of the pay distribution. An increase in the minimum wage is a crucial measure for addressing the gender pay gap. Figure 61: The gender profile of pay in Australia, share of full time male and female employees by pay range, August 2014 Per cent of Group Under $200 $200 to less than $ $400 to less than $ $600 to less than $ $800 to less than $1, $1,000 to less than $1, $1,200 to less than $1, $1,400 to less than $1, $1,600 to less than $1, $1,800 to less than $2, $2,000 to less than $2, $2,500 to less than $3, $3,000 and over Share of full time male employees, % Share of full time female employees, % Source: ABS 6333, shares are an ACTU calculation Australia s gender pay gap among full-time workers is now among the highest in the OECD, higher than those of many countries to which Australia is typically compared. Figure 62 shows the gender pay gap in OECD countries, measured using the median earnings of full-time workers. It now exceeds that of the US. ACTU Submission to the Annual Wage Review Page 109

111 Figure 62: Gender pay gap in median earnings of full-time workers in OECD countries, most recent year, per cent Korea Japan Finland Canada Mexico Austria Australia United States United Kingdom Portugal Chile Switzerland Czech Republic Sweden Iceland Slovak Republic France Germany Ireland Greece Italy Poland Spain Denmark Norway Belgium New Zealand Hungary Source: OECD Stat ( ). Data uses the latest year available for each country, from 2012 onwards The OECD average gender pay gap has trended down since 2000, whereas Australia s has trended up from 2008, since the GFC, as shown in Figure 63. The OECD figure looks smoother because it is an average. The OECD average is based on year to year data where the odd observation is missing, but not enough to put the trend into question. Both series turned up in Median female per cent of median male earnings, full time workers ACTU Submission to the Annual Wage Review Page 110

112 Figure 63: Gender pay gap in median earnings of full-time workers, Australia and OECD average, Per cent Australia OECD - Average Source: OECD Stat ( ). OECD average computed by ACTU, some observations missing Numerous academic studies of the gender pay gap in Australia have concluded that most of the gap is unexplained by differences in experience, educational attainment, or other observable characteristics other than gender. A NATSEM report in 2009 for the Department of Families, Community Services, Housing and Indigenous Affairs found that 60% of the gender pay gap in hourly earnings remained after controlling for workers characteristics other than gender. 120 This suggests that that women are not receiving equal remuneration to men for work of equal or comparable value Adjustments to minimum wages would assist in reducing the gender pay gap. Maintaining a fair and relevant safety net is n an important component of efforts to reduce gender pay inequity. All other things equal, a larger minimum wage rise will reduce the gender pay gap Ensuring that low-paid workers, who are disproportionately women, receive fair remuneration is necessary, but admittedly insufficient, intervention to ensure equal pay. Awarding our claim in this Review will help to ensure gender pay equity. 120 Cassells, R., Vidyattama, Y., Miranti, R. and McNamara, J. 2009, The Impact of a Sustained Gender Wage Gap on the Australian Economy, Report to the Office for Women, Department of Families, Community Services, Housing and Indigenous Affairs, National Centre for Social and Economic Modelling, University of Canberra, Canberra. Available from: [Accessed 24 March 2015]. ACTU Submission to the Annual Wage Review Page 111

113 OTHER MATTERS 319. This chapter addresses some other matters, including such as minimum wages for juniors, apprentices, trainees, and people with disability. Juniors, apprentices and trainees 320. As part of the Minimum Wages Objective, the Panel is required, inter alia, to establish and maintain fair minimum wages for junior employees and for employees to whom training arrangements apply, namely apprentices and trainees Minimum wages for juniors, trainees and apprentices in modern awards are generally tied to a percentage of an adult award rate of pay, or some other formula in the case of some traineeship rates under the National Training Wage Schedule (NTWS). The practical effect of these wage arrangements is that these workers are generally on rates of pay that fall well below the national minimum wage that applies to an entry-level adult employee. Incontrovertibly then, juniors, apprentices, and trainees are by definition some of the lowest paid workers in the country As we have already outlined, the ACTU seeks a hybrid increase to award rates of pay of $30/3.9% The ACTU submits that this increase to award rates, or any other increase to minimum wages in modern awards that the panel decides on, should flow through to juniors, apprentices and trainees in the usual manner This means that minimum wages for both juniors and apprentices should be adjusted automatically in line with increases to the NMW and other award rates (by virtue of the fact that apprentice and junior rates are typically expressed as a percentage of the relevant adult classification) In the case of trainees, consistent with our submissions in previous years, the ACTU supports a percentage increase to the rates in the National Training Wage Schedule that is equivalent in percentage terms to the increase awarded to the NMW. A percentage increase is important to prevent further compression of relativities within the NTWS and in relation to the NMW In the case of modern awards that contain separate trainee rates outside the NTWS, we support a $30 increase to trainee rates that are equivalent to the C10 rate or less, and a 3.9 % increase to trainee rates that are in excess of the C10 rate. Employees with disability 327. In open employment, the Supported Wage System (SWS) Schedule provides for minimum wage rates for employees whose productivity is affected by disability and who meet certain eligibility ACTU Submission to the Annual Wage Review Page 112

114 criteria. Employees of Australian Disability Enterprises (ADEs) are largely covered by the Supported Employment Services Award 2010 (the SES Award), which lists a number of approved wage assessment tools, including the SWS tool, by which employees can have their wage rates determined In our submission to the last Review, we informed the Panel of proceedings in this Commission to vary the SES Award, in order to address matters arising from the judgement of the Full Court of the Federal Court in Nojin v Commonwealth of Australia. 121 The initial outcome of those proceedings was to remove, by consent, the Business Services Wage Assessment Tool (BSWAT) from the list of approved wage assessment tools described in that Award (subject to a transitional arrangement) 122. The proceedings are however not yet concluded, including elements of the application seeking the reconsideration or removal of other wage assessment tools. There is a significant conciliation process underway which involves, among other things, a trial of a modified SWS tool and collection of workplace data. We understand that trial is expected to conclude by approximately October 2016 however the outcome of the proceedings will likely extend significantly beyond this period In our submission, in circumstances where matters that might otherwise fall for consideration under this Review are being explored in other proceedings before the Commission, those other proceedings ought to be permitted to run their course before any different approach is adopted by the Review. Accordingly, we submit that that the Panel ought not in this Review depart from its previous approach to setting wage rates for employees whose productivity is affected by disability. We anticipate that we will adopt a different position in a future Review once the other proceedings in the Commission have concluded The minimum payment for SWS employees in this Review should be adjusted by reference to the annual CPI increase to the most recent March quarter in accordance with the adjustment mechanism established by Division 2-CPI indexation of the Social Security Act 1991( SSA ) The other wage assessment tools operate by reference to modern award minimum wages and will, if retained, continue to operate in the usual manner. Casual loading 332. The Panel would be aware that, as part of the four yearly review of modern awards, a number of matters are being ventilated in common issue proceedings which may alter the character of casual employment in several modern awards. Those proceedings are part heard and will not be finalised before the Panel is required to make its decision in this Review. We submit that the 121 [2012] FCAFC See PR For further information, see ACTU s submission to the 2012 Annual Wage Review, at [460]. ACTU Submission to the Annual Wage Review Page 113

115 casual loading in modern awards and for award/agreement free employees should, in this Review, be maintained at 25 per cent. Piece rates 333. Piece rates in modern awards are fixed by reference to minimum weekly or hourly wages in those awards. Any adjustment in modern award minimum wages will and should automatically flow through to employees engaged on piece work [2011] FWAFB 3400, [376]. ACTU Submission to the Annual Wage Review Page 114

116 REFERENCES Allegretto, Sylvia, Arindrajit Dube, Michael Reich and Ben Zipperer (2015). Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas and Wascher. IRLE Working Paper No Australian Bureau of Statistics, various publications Australian Government Submission to the Annual Wage Review Belman, Dale and Paul J Wolfson 2014a The New Minimum Wage Research Employment Research Article 2, April. Belman, Dale and Paul J Wolfson 2014b What Does the Minimum Wage Do? The Upjohn Institute, July, Introduction and Chapter 4. Bewley, Helen and David Wilkinson 23 February 2015 The impact of the national minimum wage on employment and hours, National Institute of Economic and Social Research, UK Bray, J. Rob 2013 Reflections on the evolution of the minimum wage in Australia: options for the future Paper for the HC Coombs Policy Forum of the ANU Crawford School of Public Policy, May Card, David Alan B. Krueger (2016) Preface to the Twentieth-Anniversary Edition Myth and Measurement: The New Economics of the Minimum Wage (1995) Princeton University Press United States Cassells, R., Dockery, M. and Duncan, A. 2014, Falling Through the Cracks: Poverty and Disadvantage in Australia, Focus on the States Report Series, No. 1, October, Bankwest Curtin Economics Centre, Curtin University, Perth [BCEC] Coelli, Michael and Jeff Borland 2015 Job Polarisation and Earnings Inequality in Australia, paper for the Australian Conference of Economists 2014, published online in The Economic Record, Nov. Dabla-Norris, Era, Kalpana Kochhar, Nujin Suphaphiphat, Frantisek Ricka, Evridiki Tsounta, 2015, Causes and Consequences of Income Inequality: A Global Perspective IMF Staff Discussion Note, June de Linde Leonard, Megan, T. D. Stanley and Hristos Doucouliagos 2014 Does the UK Minimum Wage Reduce Employment? A Meta-Regression Analysis British Journal of Industrial Relations pp Dube, Arindrajit,T. William Lester, and Michael Reich. (2014). Minimum Wage Shocks, Employment Flows and Labor Market Frictions. IRLE Working Paper No Fair Work Act 2009 (No. 28, 2009), Commonwealth of Australia Fair Work Commission, Australian Workplace Relations Study 2015 First Findings Report 27 January Fair Work Commission 2015 Annual Wage Review Fair Work Commission 2016 Statistical Report Annual Wage Review ACTU Submission to the Annual Wage Review Page 115

117 OECD Garnero, Andrea 2015 Minimum wages across OECD and EU countries presentation 15 September KEwj1m- eiwdxlahvdp5qkhx2ed3uqfgggmae&url=http%3a%2f%2fwww.oecd.org%2fsocial%2ffocus-on- Minimum-Wages-after-the-crisis-2015.pdf&usg=AFQjCNHS8bK-Q9YTJGJH7McH02swCVzhww Labour s Share, Speech given by Andrew G Haldane, Chief Economist, Bank of England,Trades Union Congress, London 12 November 2015, p.5. Mavromaras, Kostas, Peter Sloane and Rong Zhu 2016 Research report 1/2016 An international comparison of minimum wages and labour market outcomes, Fair Work Commission Research Commission Report 1/2016, Neumark, David, J.M. Ian Salas William Wascher 2013 Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater? IZA DP No January Neumark,David, JM Ian Salas and William Wascher 2014 More on recent evidence on the effects of minimum wages in the United States IZA Journal of Labor Policy, 3:24, OECD 2014, Employment Outlook 2014 OECD 2015a OECD Employment Outlook, Chapter 1. OECD Statistics, OECD 2015b In It Together: Why less inequality benefits all, May. OECD 2016 Interim Economic Outlook 18 February Productivity Commission 2015 Inquiry into the Workplace Relations Framework, December [PC 2015]. Reserve Bank of Australia 2016 Statement on Monetary Policy February, Riley, Rebecca, and Chiara Rosazza Bondibene 2015 The impact of the National Minimum Wage on UK Businesses National Institute of Economic and Social Research and Centre For Macroeconomics, February, Report to the Low Pay Commission, UK Senate Community Affairs References Committee 2014 Bridging our growing divide: inequality in Australia The extent of income inequality in Australia, December U.K. Low Pay Commission Report 2015, National Minimum Wage, Presented to Parliament by the Secretary of State for Business, Innovation and Skills by Command of Her Majesty, March [UK LPC 2015]. Totty, Evan,2014 The Effect of Minimum Wages on Employment: A Factor Model Approach Paper No. 1278, July, Institute for Research in the Behavioral, Economic, and Management Sciences Wilkins, Roger, and Mark Wooden 2014 Two Decades of Change: The Australian Labour Market, The Australian Economic Review, vol. 47, no. 4, Dec., pp ACTU Submission to the Annual Wage Review Page 116

118 ACTU Submission to the Annual Wage Review Page 117

119 ADDRESS ACTU 365 Queen Street Melbourne VIC 3000 PHONE WEB actu.org.au D No: 34/2016 ACTU Submission to the Annual Wage Review Page 118