Social Action Office


Why the AIRC granted an $18 a week
minimum wage rise

Release Date: 13/05/2002

JUSTICE GIUDICE: This decision deals mainly with the 2002 living wage claim by the Australian Council of Trade Unions. The ACTU's claim seeks a $25 per week increase in award rates of pay and the commensurate increase in allowances. In last year's decision we noted that GDP seasonally adjusted had declined in the preceding quarter, that of December 2000, and that the labour market had weakened. Current economic conditions are significantly different. GDP growth has rebounded and it now predicted that the economy will grow between 3 and 4 per cent in 2001/2002.

The rate of unemployment is declining. Unemployment was over 10 per cent in 1993. The rate moved steadily down in the following years to a low of 6.1 per cent in the September quarter of 2000 and after a setback during 2001 there are now strong grounds to conclude the decline has resumed. The growth in full-time employment evident since 1993 was interrupted in 2000 but resumed during 2001 and strengthened in the early months of 2002. Real private business investment increased in the second half of 2001 and although investment in dwellings is likely to reduce in the second half of 2002 the outlook for private business investment generally is good.

While inflation was just outside the Reserve Bank of Australia's medium term target range in the December quarter last year at 3.1 per cent, current expectations are that inflation will moderate over the coming quarters. Growth slowed significantly during the last year in a number of the developed economies including many European countries, the United States, Japan and a number of other countries in the Asian region. More recently the United States economy is regaining strength and this is likely to lead to stronger growth in Europe and East Asia although the prospects for the Japanese economy remain problematic.

ACCI supported by the Commonwealth asked us to take into account what it described as an uncertain global environment. There is no reason to conclude that world economic conditions pose a significant threat to the Australian economy in the next 12 months. We turn now to the form of the increase to be awarded in this case. In the May 2000 decision and again last year the Commission expressed its concern that as a result of the form of the safety net adjustments in recent years relativities between award classification rates were being compressed.

In the 2001 safety net review proceedings the ACTU, supported by the state labor governments, sought an increase of 5.7 per cent in the award rates for classifications above the C10 tradesperson rate in the Metal Industry Award. In these proceedings the ACTU is seeking an increase of $25 per week in award rates at all levels. ACCI support an increase of $10 per week in the minimum wage and no increase to other award rates. AIG supported an increase of $10 per week in all award rates and the Commonwealth submitted we should award an increase of $10 in all award rates up to and including the C10 rate in the Metal Industry Award but no increase above that level.

No party sought a percentage increase. No party sought an increase which was greater at higher levels in the award structure. It follows there is no claim before us which takes account of the compression of relativities and addresses the issue in a direct way. As the Commission has indicated in previous decisions, the Act permits us to limit the application of a safety net increase to a particular level should circumstances justify that course. On previous occasions the Commission has decided not to do so.

We take the view that in the normal course in reviewing the safety net the Commission should seek to maintain a safety net of fair minimum wages for all award reliant employees not just those employees classified at or below the C10 level. We are satisfied a large proportion of award reliant employees are classified above that level. While there are differences in cost between an across-the-board increase and an increase which is restricted to employees classified at the C10 level and below we do not think that the circumstances overall, including the economic circumstances, justify limiting the increase in the award safety net in the way that the Commonwealth proposes. For similar reasons we reject the submissions by ACCI and others that any increase we award should be limited in its application to the level of the federal minimum wage. 

We turn, now, to the amount of the adjustment. Wages growth has continued strongly since our last decision. In the last year earnings generally have grown at or above 5 per cent while wages have risen at or above 3.5 per cent and wage increases through agreements have risen at close to 4 per cent. We consider the economic circumstances permit a sizeable increase in the award wages safety net. A safety net adjustment of a flat dollar amount has a different impact depending upon the wage rate to which it is applied. 

Since 1997 the lowest award rates, those at the level of a federal minimum wage, have increased faster than inflation and roughly in line with the increase in wage rates as measured by the wage cost index, the Australian Bureau of Statistics preferred measure of wages growth. Because of the form of the increases awarded employees in the higher classification levels have had smaller increases in percentage terms over that period. On this occasion we think it is appropriate to award an increase of an amount which pays regard to the position of employees slightly higher up the classification scales.

The increase will provide for the needs of the low paid to the extent that the economic conditions we have identified permit and will maintain the real value of wages of most award reliant employees. We have decided to award an increase of $18 per week in all award rates. We are confident that the cost of the increase is manageable and will not impact significantly on aggregate wages growth. The gross effect on aggregate wages growth should be broadly comparable with that associated with the $15 adjustment provided for in the May 2000 decision and not significantly greater than that arising from the May 2001 decision.

Given the limited net impact of our decision on aggregate wages growth and the likelihood of some offsetting productivity improvements any effect on inflation will be minimal. We accept that the increase we have decided upon may have some negative effects on employment in those sectors of the economy in which a high proportion of the workers are award reliant. Because safety net increases only directly apply to the wages of around 23 per cent of the employed work force the aggregate impact of the adjustment on employment will be small.

In the circumstances, particularly the growth in GDP and productivity over recent years, the outcome is a fair one which properly balances the range of matters which we are obliged by the Act to take into consideration. Consistent with our decision the federal minimum wage will be increased by $18 per week to $431.40 per week. We have also given consideration to a number of issues raised in the parties' submissions concerning the Statement of Principles. We have decided some amendments are appropriate, in particular we have amended principle 10, making and varying an award above or below the safety net. Our reasons are set out in our decision. We now publish our reasons for decision and the Commission will adjourn.

(Reproduced from the Australian Council of Trade Unions website)


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