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FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009

s.285—Annual wage review

JUSTICE ROSS, PRESIDENT SENIOR DEPUTY PRESIDENT WATSON SENIOR DEPUTY PRESIDENT HARRISON COMMISSIONER HAMPTON MR VINES PROFESSOR RICHARDSON MR DWYER

MELBOURNE, 1 JUNE 2012

Contents		Paragraph
1. The Decision		1
2. The Statutory Framework		36
3. The Parties’ Proposals		43
4. The Economy		50
5. Relative Living Standards and the Needs of the Low Paid		149
6. Promoting Social Inclusion through Increased Workforce Participation		190
7. Encouraging Collective Bargaining		214
8. The Principle of Equal Remuneration for Work of Equal or Comparable Value		225
9. Exceptional/Special Circumstances Claims		232
10. Other Matters		286
11. Summary		317
Appendix 1—Proposed Minimum Wages Adjustments

Abbreviations

2009–10 Review decision	Annual Wage Review 2009–10 decision
2010–11 Review decision	Annual Wage Review 2010–11 decision
ABI	Australian Business Industrial
ABS	Australian Bureau of Statistics
ACCER	Australian Catholic Council for Employment Relations
ACCI	Australian Chamber of Commerce and Industry
ACOSS	Australian Council of Social Service
Act	Fair Work Act 2009
ACTU	Australian Council of Trade Unions
AFEI	Australian Federation of Employers and Industries
AFPC	Australian Fair Pay Commission
AHA	Australian Hotels Association
Ai Group	Australian Industry Group
ALCI	Analytical Living Cost Indices
ANRA	Australian National Retailers Association
ANZSIC	Australian and New Zealand Standard Industrial Classification
APCSs	Australian Pay and Classification Scales
AWE	average weekly earnings
AWOTE	average weekly ordinary time earnings
C7	Engineering/Manufacturing Tradesperson—Special Class Level II
C10	Engineering Tradesperson Level I
C14	Engineering/Production Employee Level 1
CPI	Consumer Price Index
DEEWR	Department of Education, Employment and Workplace Relations
EEH	Employee Earnings and Hours
GDP	Gross Domestic Product
GFC	global financial crisis
HILDA	Household, Income and Labour Dynamics in Australia
IMF	International Monetary Fund
Manufacturing award	Manufacturing and Associated Industries and Occupations Award 2010
NMW	national minimum wage
NTWS	National Training Wage Schedule
OECD	Organisation for Economic Co-operation and Development
Panel	Minimum Wage Panel
RBA	Reserve Bank of Australia
RNNDI	real net national disposable income
SWSS	Supported Wage System Schedule
Transitional Act	Fair Work (Transitional Provisions and Consequential Amendments) Act 2009
WPI	Wage Price Index

1. The Decision

[1] The Minimum Wage Panel (the Panel) established under the Fair Work Act 2009 (the Act) is required to conduct and complete an annual wage review in each financial year. Any Panel determination varying minimum wages in modern awards must come into operation on 1 July in the next financial year, unless there are exceptional circumstances which justify a variation coming into operation at a later date. A national minimum wage order must also come into operation on 1 July in the next financial year, subject to the same qualification.

[2] The Act sets out some important procedural fairness requirements for the review. They include the provision of a reasonable opportunity for all persons and bodies to make written submissions, publication of the written submissions and a reasonable opportunity for submissions to be made in reply. Interested organisations and bodies, referred to collectively as parties, participated in this review by written submissions and some of them participated in public consultations on 14 and 21 May 2012. A number of research projects were undertaken or sponsored by the Minimum Wage and Research Branch of Fair Work Australia for the purpose of the review. The timetable for the review and all of the submissions, transcript, research reports, and some additional economic data were published on the Fair Work Australia website to ensure that all interested parties had a reasonable opportunity to participate in the review.

[3] This decision concerns the third annual wage review (the Review) under the Act. In this chapter we state the increase we have decided upon in modern award minimum wages and in the national minimum wage and give our reasons for that determination.

[4] The Act provides that in conducting the Review the Panel must take into account the general objects in s.3 of the Act, the modern awards objective in s.134(1) and the minimum wages objective in s.284. Consistent with these objectives we have taken all of the various matters into account. To a large extent this decision has been structured around a consideration of those matters and we deal with them in Chapters 2 to 9. We do not repeat them all here but the views expressed in this Chapter should be seen in the context of our decision as a whole. We turn first to the economic circumstances.

[5] Economic conditions over the past year have been reasonably strong, driven by the resources and related sectors, with some softening in labour market conditions in the second half of 2011 and a moderation in inflation. Economic growth was lower than anticipated at the time of the 2010–11 annual wage review (the 2010–11 Review), largely as a result of weaker net exports.

[6] Annual inflation has been volatile, falling from 3.1 per cent in the year to the December quarter 2011 to 1.6 per cent over the year to the March quarter 2012. Inflation is forecast to be around the middle of the Reserve Bank of Australia (RBA) target band of 2–3 per cent, after abstracting the impact of the carbon price.

[7] Productivity growth has improved since the end of 2010, with trend gross value added per hour worked in the market sector increasing by 2.2 per cent over the year to the December quarter 2011 and Gross Domestic Product (GDP) per hour worked and GDP per capita increasing by around 1.4 per cent over the same period. Whether that improvement will persist is not clear at this stage.

[8] On average, business profitability has remained robust and there is little evidence of unusual levels of bankruptcy. The available information discloses diverse outcomes across the award-reliant industries over the past year and diverse economic performance within some of those industries. There was little information before us directed specifically to recent economic circumstances of small business. A review of entry and exit rates of businesses employing fewer than 20 workers between 2007–08 and 2010–11 shows no signs of unusual levels of economic difficulties experienced by small business. This does not deny that some enterprises and sectors of some industries are experiencing difficult times, both in the award-reliant industries and in other parts of the economy.

[9] Unemployment in April 2012 was at historically low levels and growth in hours worked rebounded quite strongly in the first four months of 2012 from its sharp falls during 2011. Employment growth was more modest and varied considerably between industries. However, the continuing high levels of unemployment among young people, the reasonably elevated underemployment rate and some decline in both the participation rate and the employment to population ratio for men are signals of some fragility in the labour market.

[10] Wages growth has been largely unexceptional over the past 12 months. Average weekly ordinary time earnings (AWOTE) has risen at about its average rate for the past decade, while growth in the Wage Price Index (WPI) and in new collective agreements has been a little below average. We note that while there has been a small growth in real unit labour costs in the past year, real unit labour costs in 2012 are 5.9 per cent lower than they were a decade ago.

[11] One of the consequences of the strength of the resources sector is that it is driving structural change in output and employment. This structural change is not having a uniform impact on the award-reliant industries—some are increasing hours worked, output or profitability while others are contracting in one or more of these dimensions. The available evidence suggests that Australian workers and enterprises are responding quite effectively to the changing patterns of demand. However, it is likely the structural change that is occurring will lead to some increased structural and/or frictional unemployment.

[12] The Australian economy is expected to perform well in 2012–13, with average growth in output and employment and modest wage and price inflation. Aggregate growth is expected to be at around its trend rate, with household consumption expected to increase by 3 per cent per annum over the next two years. Mining investment will drive growth, with the non-resources part of the economy forecast to grow at a below-trend average annual rate of 2 per cent over the next two years.

[13] In summary, the economic outlook remains sound, with growth continuing around trend levels in aggregate, with continuing relatively low unemployment and moderate inflation. However, a number of considerations give rise to some caution. The outlook for growth is uneven, with the resources sector driving domestic growth and the non-resources sector growing less strongly. Global risks continue, most notably those associated with continuing sovereign debt problems in Europe. There are also conflicting signals in the main economic indicators and considerable volatility, from quarter to quarter, in important measures such as growth in company gross operating profits, inflation, hours worked and gross value added by industry. These considerations make it difficult to form a clear view of current and prospective economic performance. This uncertainty and the diversity of experience in the economy have been significant factors in our determination of the level of increase in minimum wages.

[14] We now turn to the other considerations which we must take into account.

[15] We are required to take into account the relative living standards and needs of the low paid. Except at the national minimum wage level, the value of all award rates of pay has fallen relative to the various measures of movements in average rates of pay. The national minimum wage has risen over the past decade at about the same rate as the WPI. This implies that the lowest award rate has kept pace with increases in other rates of pay for non-managerial employees. In this sense, the relative position of the lowest award rate has been maintained, but this is not so for higher award rates. Over the past decade, average earnings have risen faster than individual rates of pay, caused by the workforce moving into higher paid jobs over time. As a consequence, those reliant on award rates of pay have fallen behind the average earnings of workers and, in this sense, have not retained their relative standard of pay.

[16] Direct evidence of the extent to which award-reliant families are able to meet their needs is derived from measures of their financial stress and inability to undertake basic activities that are normal for higher paid households. This evidence shows that: low-paid households have more signs of financial stress than higher paid households; low-paid workers are scattered across the whole of the household income distribution (and more evenly across the distribution of household expenditure); and the differences in degrees of financial stress between lower and higher paid households, while significant, have not changed in a systematic way in recent years.

[17] Most award-reliant workers do not rely entirely on their own earnings to meet the material needs of themselves and their families. The tax-transfer system plays an important role in supporting the incomes of low-paid workers, including those receiving award rates. The real disposable incomes of a wide range of household types that are reliant on award wages have increased over the past 10 and five years, as a result of changes to the tax-transfer system. The changes have particularly benefited families with children.

[18] The relevance of the tax-transfer system assumed particular significance in this Review and a number of submissions addressed the Household Assistance Package associated with the introduction of a price on carbon; the other tax-transfer measures announced in the 2012–13 Budget; and the proposed increases in the Superannuation Guarantee Levy. We deal with those submissions in detail in Chapter 5. We conclude that we should not provide any additional assistance to compensate for the anticipated price effects associated with the introduction of a price on carbon. Compensation has already been provided through tax cuts and transfer payments and further compensation by minimum wage adjustments would amount to “double dipping”. Nor are we persuaded that the degree of “overcompensation” or “buffer” provided in the Household Assistance Package should be taken into account so as to reduce the level of increase that we would otherwise determine.

[19] The other tax-transfer measures announced in the 2012–13 Budget form part of the general context of this Review, but we are not persuaded that such changes warrant a reduction in the quantum of the minimum wage increase we have determined. We note that the budget measures are largely targeted at those in particular family circumstances and do not have general application to all low-paid workers.

[20] A number of parties submitted that we should announce our intention to take the proposed increases in the Superannuation Guarantee Levy into account in subsequent reviews. We are not persuaded that it is appropriate to adopt such a course. The proposed increases have not yet been passed by the Parliament and in any event are not proposed to take effect until 1 July 2013. These matters can be the subject of further consideration in the next review.

[21] In relation to the general operation of the tax-transfer system, we note that there is little consensus among the parties about the way in which changes in tax-transfer payments are to be taken into account in the context of minimum wages. We would be assisted if these matters were given some consideration by the parties in their submissions in future reviews. We would also encourage the Australian Government to discuss such matters with the major parties in an effort to arrive at a consensus as to the specific effect any future tax-transfer changes may have on the variation of minimum wages in a review.

[22] We are also required to take account of the promotion of social inclusion through increased workforce participation.

[23] There was no dispute that employment is an important component of social inclusion. We also consider that the pay and conditions attaching to work are relevant because they impact upon an employee’s capacity to engage in community life and the extent of their social participation.

[24] Incentives to work remain a relevant issue for consideration in assessing social inclusion. The effect of minimum wage levels on the incentive to work must be balanced against any impact on the demand for labour. The demand and supply factors at work must be considered in the context of broader labour market developments including, in current circumstances, a continuing low level of unemployment, but some signals of fragility in the labour market. There has been considerable diversity in employment growth between industries but, as discussed in Chapter 5 of our decision, such variation has most likely been driven by structural adjustment in the economy, rather than recent increases in minimum wages.

[25] We are also required to take into account the principle of equal remuneration for work of equal or comparable value. This consideration is a factor in favour of an increase, as an increase in minimum wages is likely to provide some measure of assistance in promoting pay equity. We note that other means are available under the Act to address such issues more directly.

[26] Section 134(1)(b) of the Act requires us to take into account the need to encourage enterprise bargaining. In that context we note that the proportion of award-reliant employees has steadily decreased since 2000, as the proportion of employees on collective agreements has increased. In 2000, 23.2 per cent of employees were award reliant, by 2010 only 15.2 per cent of employees were award reliant. There is no evidence that the incentive to bargain has been adversely affected by the increases in minimum wages which have occurred over the last decade.

[27] As we have noted, the Act requires that we take into account a range of considerations. In this Review, we have decided that those considerations favour a moderate increase which will improve the real value of award wages and assist the living standards of the low paid. As noted in the Annual Wage Review 2010–11 decision (2010–11 Review decision) 1, the nature of increases in award minimum rates over the last 20 years has compressed award relativities and reduced the gains from skill acquisition. The position of the higher award classifications has also been reducing relative to market rates and to average earnings.2 In that review those considerations led the Panel to determine a uniform percentage increase. We have reached the same conclusion in this Review, for the same reasons. The increase in modern award minimum wages we have decided on is 2.9 per cent. Weekly wages will be rounded to the nearest 10 cents.

[28] The national minimum wage is currently set at the minimum wage for the C14 classification, the lowest wage level in the Manufacturing and Associated Industries and Occupations Award 2010 (Manufacturing Award). 3 No cogent basis was advanced for disturbing that relationship. The national minimum wage will be $606.40 per week or $15.96 per hour. The hourly rate has been calculated on the basis of a 38 hour week for a full-time employee. This constitutes an increase of $17.10 per week or 45 cents per hour.

[29] Finally, a number of parties sought the deferral of any variation determination arising from this Review for employers adversely affected by “severe and unprecedented weather events”, 4 in particular the floods in New South Wales. A number of employer associations also sought an exemption from any variation determination being applied to certain modern awards in what were described as the services industry sectors of the economy, with particular reference to those covering the retail and hospitality sectors.5

[30] For the reasons given in Chapter 9 we are not persuaded that those supporting a deferral have established that there are “exceptional circumstances” which justify an operative date later than that prescribed in s.286(1). The reasons given for rejecting similar claims in the 2010–11 Review remain apposite.

[31] We also deal with the exemption claims in Chapter 9. We are not persuaded to grant a general exemption to the modern awards which operate in the retail and hospitality sectors. The diversity of experience within these sectors tells strongly against the grant of a general exemption.

[32] The evidence does not support a conclusion that, as a whole, these industries are suffering economic circumstances which would warrant an exemption from wage increases arising from our decision.

[33] The general matters relied upon by those supporting an exemption, such as structural changes in the Australian economy, changed patterns of consumer behaviour, utility and rental costs, and corporate insolvencies, relate to the economy as a whole and do not support differential treatment for the modern awards that have been raised with the Panel. We have however taken these matters into account in our consideration of the economy in Chapter 4 and in the decision more generally.

[34] In dealing with the deferral/exemption claims, we make a number of observations about the relevant legislative provisions. The current legislative framework ensures that annual wage reviews are conducted in a timely way and provide certainty for businesses and employees by specifying the operative date of any wage increases flowing from such reviews. However, the interaction of ss.157(2), 285(1) and 286 gives rise to what may have been an unintended consequence. The practical effect of these provisions is to inhibit the Panel’s capacity to establish an incapacity to pay process that can be accessed after an annual wage review has been completed.

[35] The current review of the Act provides an opportunity to address these issues. In the event that the Act is amended so as to allow for the adoption of such an economic incapacity process, we would invite submissions as to whether such a process should be implemented and, if it was, the test which should be adopted.

2. The Statutory Framework

[36] The Act requires us to review modern award minimum wages and the national minimum wage order. In doing so we must take into account the considerations referred to in both the modern awards objective and the minimum wages objective. The modern awards objective is in s.134(1) which reads:

“134 The modern awards objective

What is the modern awards objective?

(1) FWA must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

(a) relative living standards and the needs of the low paid; and

(b) the need to encourage collective bargaining; and

(c) the need to promote social inclusion through increased workforce participation; and

(d) the need to promote flexible modern work practices and the efficient and productive performance of work; and

(e) the principle of equal remuneration for work of equal or comparable value; and

(f) the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and

(g) the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and

(h) the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.”

[37] In setting, varying or revoking modern award minimum wages the Panel must take the modern awards objective into account.

[38] The minimum wages objective is in s.284. It is in these terms:

“284 The minimum wages objective

What is the minimum wages objective?

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

(a) the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

(b) promoting social inclusion through increased workforce participation; and

(c) relative living standards and the needs of the low paid; and

(d) the principle of equal remuneration for work of equal or comparable value; and

(e) providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.”

[39] Section 284(2) deals with the application of the minimum wages objective:

“(2) The minimum wages objective applies to the performance or exercise of:

(a) FWA’s functions or powers under this Part; and

(b) FWA’s functions or powers under Part 2-3, so far as they relate to setting, varying or revoking modern award minimum wages.

[40] In addition to those specific objectives we are also required under s.578(a) to take into account the general objectives of the Act set out in s.3.

[41] There is a degree of overlap between the matters specified in the modern awards objective, the minimum wages objective and the objects of the Act. To the extent that these matters are of direct relevance to the Review they may, generally speaking, be grouped into three broad categories: economic; 6 social;7 and collective bargaining.8

[42] We have taken all of these matters into account in arriving at our decision and specifically address them in Chapters 4, 5, 6, 7 and 8 of this decision. We now turn to consider the proposals advanced on behalf of the parties.

3. The Parties’ Proposals

[43] Submissions were received from a wide range of parties—the Australian and State Governments, collective bodies representing employees, employers, other specific groups and private individuals. Proposals put forward by the parties related to both the quantum of any increases to modern award minimum wages and the national minimum wage, as well as exemptions and deferrals in respect of any increases determined by the Panel. Some parties made general submissions that did not propose a particular outcome. Some employer groups submitted that there should be no increase to the national minimum wage and modern awards. 9 Appendix 1 outlines the submissions made in relation to the proposed minimum wages adjustments.

Proposals for increases to the national minimum wage and modern awards

[44] Some submissions proposed a tiered approach. 10 The Australian Council of Trade Unions (ACTU) recommended a tiered approach of a flat dollar increase of $26.00 per week to the national minimum wage and to modern award wages up to and including the C10 level. This is the equivalent of a 3.8 per cent increase at the C10 level, which the ACTU recommended be applied to all modern award wages above the C10 level. The reference to the C10 level is a reference to the Engineering/ Manufacturing Tradesperson—Level I of the Manufacturing Award, and equivalent levels in other modern awards.

[45] The Australian Catholic Council for Employment Relations (ACCER) also proposed a tiered approach. ACCER recommended a percentage increase to modern awards at or above the C10 level of 2.6 per cent, comprising the change in the Consumer Price Index (CPI) for the year to the March quarter 2012, plus 1 per cent for productivity increases. For modern award levels below C10, ACCER proposed a $17.80 increase per week, which is the equivalent of the C10 increase as a dollar amount. For the national minimum wage, ACCER recommended a $27.80 per week increase.

Proposals for a flat dollar increase

[46] A number of submissions proposed flat dollar increases. 11 The highest flat dollar increase was proposed by the Australian Industry Group (Ai Group), which recommended an increase of $14.00 per week to the national minimum wage and modern awards on the basis that a flat dollar increase would provide a relatively higher benefit to the lower paid. However, Ai Group added that if any increase were to be on a percentage basis, then an increase of 2 per cent, the equivalent of a $14.00 increase at the C10 level, should be applied to the national minimum wage and all modern awards. The Australian Chamber of Commerce and Industry (ACCI) proposed an increase of $9.40 per week, considered on an “award-by-award basis”.12 The lowest flat dollar increase was proposed by the Australian National Retailers Association (ANRA), which recommended an increase of $8.00 per week to the national minimum wage and modern award wages.

Proposals for a percentage increase

[47] The Western Australian Government recommended increasing the national minimum wage and modern award wages by a percentage equivalent to the change in the CPI published in the 2012–13 Budget papers.

[48] Australian Business Industrial (ABI) recommended an increase of 1.8 per cent to the national minimum wage and modern award wages. The Accommodation Association of Australia proposed an increase of no more than 2.25 per cent to the national minimum wage and modern awards.

[49] The “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU), The Australian Workers’ Union, the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, the National Tertiary Education Industry Union and The Association of Professional Engineers, Scientists and Managers, Australia jointly submitted that any increase from this Review should be percentage based. 13 The Government of South Australia also noted the approach taken by the Panel in the 2011–12 Review in granting a percentage increase and emphasised the importance of considering the maintenance of relativities of higher award levels in reaching this decision.14

4. The Economy

Views of the parties on the economy

[50] Submissions generally noted that economic growth over the 12 months to the December quarter 2011 has been uneven and below trend, despite the mining boom. Ai Group commented that the Australian economy is slowing due to weakness in exports and lower private investment 15, while ACCI noted that the imbalance of growth between industries is “severe”, with growth being dominated by the rapid expansion of mining investment.16 In contrast, the ACTU noted that trend estimates of growth were more positive and were around the long-term average growth rate.17 The Australian Government submitted that “[t]he fundamentals of the Australian economy remain strong and the outlook is favourable”,18 although it cautioned that there was a weaker outlook for more labour intensive sectors such as retail and manufacturing.19

[51] In their post-Budget submissions, the Australian Government and ACCI remarked that economic activity by industry is expected to remain varied. 20 However, the ACTU highlighted that the 2012–13 Budget anticipated that differences in growth rates between the mining and non-mining sectors will be reduced.21

[52] A large number of submissions cited the transition to modern awards, the price on carbon, the higher value of the exchange rate and the upcoming increases to superannuation as additional costs that will be incurred by businesses. The Australian Government argued that the introduction of the carbon price should not be a factor in the Panel’s deliberations. 22 In its submission in reply, ACCI supported the Australian Government’s submission for the “position that the minimum wage should not be used to double compensate households for the cost of living impact of the carbon price”.23 A number of submissions commented that the introduction of a price on carbon is likely to increase headline inflation.24

[53] Numerous submissions highlighted that labour market conditions had softened over 2011. ACCI noted a slowdown in employment growth, differential employment outcomes by state and territory, with significant falls in employment in the two largest States 25 and a “steady deterioration” in the rate of unemployment.26 In its submission in reply, the ACTU argued that “[t]he Panel should not be left with the impression that unemployment is steadily deteriorating” and noted that since the month of September 2011, the unemployment rate had remained relatively steady.27 While many post-Budget submissions stated that employment growth is expected to improve, the Australian Government and ACCI cautioned that weaker employment growth is expected in the services sector and strong employment growth is anticipated in the resources-related sectors over the coming years.28

[54] Many submissions expressed concern about the international economic outlook, noting that further downside risks were a possibility, particularly in the euro area, affecting growth prospects in advanced economies. Many post-Budget submissions noted that economic growth is expected to be driven by resources sector investment, with little contribution from either dwelling investment or public spending.

[55] In evaluating the available evidence, we are conscious of an apparent contradiction in some of the main economic indicators. For example, the frequently noted pressures for structural change in the economy are not matched—as might be expected—by higher overall unemployment, more variability in bargained wages, greater diversity in unemployment between regions, greater levels of entry or exit amongst small businesses or declining profits within industry. At an industry level, these contradictions are illustrated in the manufacturing industry where output has risen above the economy average in the year to December 2011 (3.5 per cent, compared with the industry average of 2.7 per cent), 29 but profits and employment have fallen. By contrast, output in mining rose only 1.9 per cent in the same period. Similar contradictions are evident in several of the award-reliant industries, which we examine later in our decision.

Recent economic performance 30

Economic growth

[56] Quarterly growth in GDP across the Organisation for Economic Co-operation and Development (OECD) major seven countries was 0.3 per cent in the December quarter 2011, although growth differed across countries (Chart 4.1). The Australian economy performed well by comparison to these developed countries over 2011. Although growth in the March quarter 2011 was relatively low compared with the OECD major seven countries, growth in the June and December quarters 2011 were among the highest quarterly growth rates recorded in 2011 in those countries.

Chart 4.1: International comparisons of quarterly GDP growth

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

[57] Real net national disposable income (RNNDI) grew at a higher rate than real GDP over the decade to the December quarter 2011, mainly due to strong growth in the terms of trade (Chart 4.2). Although RNNDI fell by 0.9 per cent in the December quarter 2011, it grew by 4.9 per cent over the year. 31 The gap between growth in GDP and RNNDI is expected to fall in the next two years as the terms of trade fall.32

Chart 4.2: Real net national disposable income, real GDP and the terms of trade

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

[58] The average annual percentage increase in gross value added by industry is shown in Chart 4.3. The industries with the highest average annual growth in gross value added over the year to the December quarter 2011 were Arts and recreation and Wholesale trade, followed by Health care and social assistance and Public administration and safety. Growth was lowest in Agriculture, forestry and fishing, and Administrative and support services.

[59] To illustrate the circumstances of award-reliant industries, we refer to the five industries that have the highest proportion of employees paid the award rate as the “award-reliant industries”. These are Accommodation and food service, Administrative and support services, Other services, Retail trade and Rental, hiring and real estate services.

[60] For these industries growth in gross value added was mostly positive. Over the last year gross value added increased in each of the award-reliant industries other than Administrative and support services where it fell by 5.9 per cent. Gross value added increased by 4.2 per cent in Other services, 2.8 per cent in the Accommodation and food services industry, 1.9 per cent in the Rental, hiring and real estate services industry and 1.8 per cent in the Retail trade industry.

Chart 4.3: Average annual change in gross value added by industry—December quarter 2001–December quarter 2011 (Percentage)

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

Productivity

[65] Chart 4.4 shows the productivity changes over the year to the December quarters of each year in trend terms. Productivity is measured as GDP per hour worked for all sectors and gross value added per hour worked for the market sector. 33 While the series show fluctuations around a negative trend, all the measures have increased in the past year.

[66] Gross value added per hour worked in the market sector increased by 2.2 per cent over the year to the December quarter 2011 in trend terms, while GDP per hour worked in the whole economy increased by 1.4 per cent over the year. GDP per capita increased by 1.4 per cent over the year. These increases in productivity are relatively high in the context of the past decade. Annual productivity measures should be interpreted with caution, as in the short term they are subject to influences which vary across the economic cycle.

Chart 4.4: Measures of productivity—Annual growth rates to December

Note: Data are in trend terms. Labour productivity is measured as real GDP per hour worked. Gross value added measures the value of output at basic prices minus the value of intermediate consumption at purchasers’ prices. The series “Gross value added per hour worked—market sector” has been introduced by the ABS from the September quarter 2011, and replaces the “GDP per hour worked—market sector” series. Gross value added per hour worked in the market sector includes all industries except for Public administration and safety, Education and training and Health care and social assistance.

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

Business competitiveness and viability

[67] The profits and wages shares of national income represent the returns to capital and labour, respectively, in the process of production. Over the decade to the December quarter 2011, the profits share increased by 3.5 percentage points and the wages share fell by 1.5 percentage points (Chart 4.5).

[68] The profits share fell by 0.5 percentage points over the year to the December quarter 2011 to be 28.5 per cent, while the wages share increased by 0.8 percentage points over the year to be 53.1 per cent.

Chart 4.5: Profits and wages shares of total factor income

[Source: ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

[69] Quarterly growth in company gross operating profits was volatile over the decade to the December quarter 2011, but remained positive for most of the period. Quarterly profit growth for all industries was mostly higher than for the subset of award-reliant industries over the period. After reaching a peak early in the second half of 2011, quarterly profit growth for all measures declined in the December quarter 2011.

[70] For all industries, company gross operating profits fell by 6.5 per cent in the December quarter 2011 to be 2.2 per cent higher over the year. Company gross operating profits in Mining fell by 8.7 per cent in the December quarter 2011 and increased by 4.1 per cent over the year. For the non-mining industries, profits fell by 5.2 per cent in the December quarter 2011 to be 1.2 per cent higher over the year. For award-reliant industries profits fell by 3.0 per cent in the December quarter 2011 to be 0.8 per cent higher over the year.

[71] In two important award-reliant industries—Retail trade and Accommodation and food services—profits remained steady or increased in the latter half of 2011. 34 Indeed, their profitability over the whole year increased well above the average for all industries (2.2 per cent), with Retail trade profits rising by 7.3 per cent, Accommodation and food services by 12.8 per cent and Rental, hiring and real estate services by 16.1 per cent.35

[72] Business bankruptcy rates are defined as the number of business-related bankruptcies divided by the number of self-employed and employers in the economy. These rates have fluctuated between 0.3 and 0.4 per cent over the decade to 2010–11, however, the rate has increased a little since 2008–09, reaching a peak of 0.39 per cent in 2010–11. 36

Inflation

[73] Several different measures can be used to identify the nature of price movements, including the CPI, underlying inflation measures and living cost indices. The CPI measures changes in the prices of a “basket” of consumer goods and services weighted to the expenditure patterns of the average household. Some items captured by the consumer “basket” exhibit short-term price volatility, causing fluctuations in the CPI without leading to a sustained change in the inflation rate. As a result, the Australian Bureau of Statistics (ABS) produces two underlying inflation measures, the trimmed mean and weighted median, which eliminate volatile items. 37

[74] The ABS also calculates indices to estimate changes in living costs. The Analytical Living Cost Indices (ALCIs) are based on actual expenditure in four different household types. 38 Chart 4.6 includes the ALCI for employee households, for whom the main source of income is wages and salaries.

[75] Trends in the ALCI and CPI were similar until 2008, when annual increases in the ALCI began to exceed the increases in the CPI. The ABS attributes much of the difference to the inclusion of interest payments on mortgage debt and consumer credit charges in the ALCI, expenses which are not captured by the CPI. 39 The three measures of inflation declined with the onset of the global financial crisis (GFC) in the September quarter 2008, with the CPI and ALCI bottoming out in the September quarter 2009.

[76] There has been considerable volatility in quarterly inflation over the past five quarters (as shown in Chart 4.6), with quarterly CPI growth ranging from 1.6 per cent in the March quarter 2011 to zero in the December quarter 2011. This has had the effect of making estimates of annual inflation sensitive to the choice of the year ended quarter. For example, inflation in the year ended December 2011 was 3.1 per cent, whereas in the year ended March 2012 it was 1.6 per cent.

[77] Some of the moderating influences on price increases over the year to the March quarter 2012 were the decline in the prices of several tradeable goods and lower fruit and vegetable prices. Fresh produce supplies recovered after extreme weather events earlier in 2011, with vegetable prices decreasing in the March quarter 2012 by 0.3 per cent, to be 17.1 per cent lower over the year. Fruit prices decreased by 30 per cent in the March quarter 2012, and 24 per cent over the year.

[78] Underlying inflation remained within the RBA’s medium-term target band, rising by 0.4 per cent in the March quarter 2012 and 2.2 per cent over the year. The ALCI for employee households decreased by 0.4 per cent in the March quarter 2012, resulting in an increase of 1.2 per cent over the year.

Chart 4.6: Measures of inflation

Note: Underlying inflation is the average of the trimmed mean and weighted median.

[Source: ABS, Consumer Price Index, Australia, Mar 2012, Catalogue No. 6401.0; ABS, Analytical Living Cost Indexes for Selected Australian Household Types, Mar 2012, Catalogue No. 6463.0.]

Wages

[79] Measures of nominal wage growth are shown in Chart 4.7. The seasonally adjusted WPI increased by 0.9 per cent in the March quarter 2012, following a rise of 1.0 per cent in the December quarter 2011. Over the year to the March quarter 2012, the WPI grew by 3.6 per cent. In the award-reliant industries, Retail trade wage growth was 3.0 per cent through the year, Administrative and support services increased by 3.4 per cent through the year and Accommodation and food services increased by 3.4 per cent through the year. 40

[80] Another measure of wages, AWOTE, is affected by compositional shifts within the labour market, which can result in fluctuations in earnings growth despite hourly wage rates remaining constant. The series exhibited its longest downward trend in 10 years over the period from the May quarter 2009 to the February quarter 2011, with annual growth falling from 6.1 per cent to 3.8 per cent. AWOTE increased by 1.1 per cent in the February quarter 2012 to be 4.4 per cent higher over the year.

[81] Annual wage growth under new collective agreements was 3.7 per cent in the September quarter 2011, slightly below its average of 4.1 per cent since the December quarter 2001. New collective agreements in the public sector recorded annual wage growth of 3.5 per cent in the September quarter 2011, while the private sector recorded 3.8 per cent growth in the same period. In the award-reliant industries in the September quarter 2011, new agreements in Retail trade provided an average pay increase of 3.6 per cent, while Accommodation and food services and Administrative and support services provided an average pay increase of 3.3 per cent and 4.4 per cent respectively. 41

Chart 4.7: Measures of nominal wage growth—Annual

[Source: ABS, Labour Price Index, Australia, Mar 2012, Catalogue No. 6345.0; ABS, Average Weekly Earnings, Australia, Feb 2012, Catalogue No. 6302.0; DEEWR, Trends in Federal Enterprise Bargaining, September quarter 2011, http://www.deewr.gov.au/WorkplaceRelations/Pages/Reports.aspx.]

[82] Unit labour costs measure the relationship between wages costs and labour productivity. Nominal unit labour costs are calculated as the average cost of labour per unit of output in current dollar values. Real unit labour costs adjust for inflation. As wages represent the largest component of labour costs, positive growth in real unit labour costs makes it likely that wages are increasing more quickly than productivity.

[83] Annual growth in nominal unit labour costs has fallen from a peak of 6.9 per cent over the year to the March quarter 2011, rising by 3.5 per cent over the year to the December quarter 2011. Real unit labour costs increased by 0.4 per cent over the year to the December quarter 2011 (Chart 4.8). Since December 2001, real unit labour costs have fallen by 5.9 per cent.

Chart 4.8: Real unit labour costs, index

[Source: Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0.]

Labour market

[84] Employment increased by 0.6 per cent and aggregate monthly hours worked increased by 2.6 per cent over the year to April 2012. Annual growth in employment has remained modest, after recording a peak increase of 3.6 per cent in November 2010.

Chart 4.9: Employment levels

[Source: ABS, Labour Force, Australia, Apr 2012, Catalogue No. 6202.0]

[85] Full-time employment increased by 0.1 per cent (10 200 people) and part-time employment increased by 1.7 per cent (58 900 people) over the year to April 2012 (Chart 4.10). Full-time and part-time employment levels have remained fairly stable since May 2011.

Chart 4.10: Full-time and part-time employment levels

[Source: ABS, Labour Force, Australia, Apr 2012, Catalogue No. 6202.0.]

[86] The industries that experienced the highest average annual employment growth over the decade to February 2012 were Mining (11.6 per cent) and Electricity, gas and water and waste services (6.4 per cent) (Chart 4.11). The largest declines occurred in Agriculture, forestry and fishing (–2.5 per cent) followed by Manufacturing (–0.7 per cent).

[87] Employment growth varied among award-reliant industries over the decade to February 2012. Employment growth in Rental, hiring and real estate services (3.5 per cent) and Administrative and support services (2.4 per cent) was above average annual growth for all industries, while employment growth in Retail trade (1.5 per cent), Accommodation and food services (1.3 per cent) and Other services (1.4 per cent) was below average annual growth.

Chart 4.11: Average annual change in employment by industry—February 2002–February 2012 (Percentage)

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2012, Catalogue No. 6291.0.55.003.]

[88] The average annual growth in the number of employed persons over the decade to February 2012 was highest in Health care and social assistance (45 000 people) (Chart 4.12). Relatively high increases in the number of employed persons also occurred in Construction (31 000 people) and Professional, scientific and technical services (28 000 people), Public administration and safety and Education and training (both 20 000 people). Of the remaining award-reliant industries, Retail trade (16 000 people) contributed the largest increase to the aggregate number of persons employed, close to the increase in Mining (17 000 people).

[89] Over the year to February 2012, employment growth was highest in Health care and social assistance (49 100 people), with significant increases in employment in Mining (44 600 people), Public administration and safety (34 600 people) and Other services (28 600 people). Employment fell significantly in Accommodation and food services (59 300 people), Transport, postal and warehousing (46 100 people), Retail trade (35 400 people) and Wholesale trade (29 900 people).

Chart 4.12: Change in employment by industry—February 2002–February 2012 (‘000s)

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2012, Catalogue No. 6291.0.55.003.]

[90] Hours worked have increased for most months over the past decade (Chart 4.13). Hours worked recorded an increase of 2.6 per cent over the year to April 2012. Seasonally adjusted, they rose by 2.3 per cent in the period January to April 2012 and 0.4 per cent from March to April 2012. 42

Chart 4.13: Monthly hours worked—Percentage change

[Source: ABS, Labour Force, Australia, Apr 2012, Catalogue No. 6202.0]

[91] Growth in hours worked over the year to February 2012 was highest in the Mining industry (22.5 per cent) and lowest in Arts and recreation services (–9.9 per cent) (Table 4.1). As with employment, hours worked increased particularly strongly in Rental, hiring and real estate services (13.5 per cent) and Other services (7.6 per cent). It decreased in the other award-reliant industries of Administration and support services, Retail trade and Accommodation and food services.

Table 4.1: Change in employment and hours worked by industry—February 2011–February 2012 (Percentage)

Note: Employment data are seasonally adjusted and hours worked data are in original terms. Industries are ranked by employment growth rate.

[Source: ABS, Labour Force, Australia, Detailed, Quarterly, Feb 2012, Catalogue No. 6291.0.55.003.]

[92] The unemployment rate fell in April 2012 to 4.9 per cent, after remaining relatively steady over the second half of 2011 and early 2012 (Chart 4.14). The participation rate was 65.2 per cent in April 2012, a little lower than in April 2011 and below its peak of 66.0 per cent in November 2010.

Chart 4.14: Unemployment and participation rates

[Source: ABS, Labour Force, Australia, Apr 2012, Catalogue No. 6202.0.]

[93] Young people and lone parents are more likely to be low paid than other groups of workers and they experience higher than average unemployment (Chart 4.15). Unemployment for sole parents was not strongly affected by the GFC. But unemployment rose sharply for young people and has remained elevated. In April 2012, the unemployment rate for 15–24 year olds was 11.7 per cent and was 8.4 per cent for lone parents.

Chart 4.15: Unemployment rates—15–24 year olds and lone parents

Note: The unemployment rate for lone parents is in original terms. Unemployment rates for 15–24 year olds and aggregate unemployment are seasonally adjusted.

[Source: ABS, Labour Force, Australia, Apr 2012, Catalogue No. 6202.0; ABS, Labour Force, Australia, Detailed—Electronic Delivery, Apr 2012, Catalogue No. 6291.0.55.001.]

[94] The unemployment rate for 15–19 year olds has also been higher historically than the aggregate unemployment rate. The unemployment rate for 15–19 year olds has largely failed to improve post-GFC and was 15.7 per cent in April 2012.

[95] Underemployed workers are part-time workers who would like to work more hours. Underutilised workers comprise underemployed workers plus unemployed workers. Over the past decade, the number of underemployed workers and the underemployment rate were highest in the November quarter 2009, and were also relatively high in the February quarter 2012 (Table 4.2). This was also the case for the number of underutilised workers, which reached a peak in the November quarter 2009 and was relatively high in the February quarter 2012 compared with the past decade. The underutilisation rate was 12.5 per cent in the February quarter 2012.

Table 4.2: Underemployment and underutilisation—By total, rate and percentage change

Year ended	Under- employed workers	Under- employment rate	Change over year	Under- utilised persons	Under- utilisation rate	Change over year
(Month)	(000s)	(%)	(pts)	(000s)	(%)	(pts)
Nov-01	737.5	7.5		1414.3	14.5
Nov-02	678.4	6.8	–0.7	1297.2	13.0	–1.4
Nov-03	735.2	7.3	0.5	1309.3	13.0	0.0
Nov-04	705.5	6.9	–0.4	1241.5	12.1	–0.9
Nov-05	723.2	6.8	0.0	1249.4	11.8	–0.3
Nov-06	684.8	6.3	–0.5	1180.2	10.9	–0.9
Nov-07	687.2	6.2	–0.2	1189.4	10.6	–0.3
Nov-08	734.9	6.4	0.3	1247.7	11.0	0.3
Nov-09	903.3	7.8	1.3	1554.0	13.4	2.4
Nov-10	849.6	7.1	–0.7	1469.3	12.3	–1.1
Nov-11	877.7	7.3	0.2	1511.9	12.6	0.3
Feb-12	877.5	7.3	0.4	1509.7	12.5	0.6

Note: Underemployment figures are measured quarterly.

[Source: ABS, Labour Force, Australian, Feb 2012, Catalogue No. 6202.0]

[96] Table 4.3 shows the employment to population ratios for people aged 15–64 years and disaggregated for males and females. As at April 2012, the total employment to population ratio was 72.5 per cent, lower than the employment to population ratio for males (78.3 per cent) and higher than the employment to population ratio for females (66.7 per cent). Although the total employment to population ratio increased from a low of 68.9 per cent in December 2001, it has decreased from its peak in December 2007 of 73.2 per cent. The fall in the employment to population ratio for men in 2011 and 2012 suggests a softening in their employment opportunities. This fall is not apparent for women.

Table 4.3: Employment to population ratio—Total and by gender (15–64 year olds)

Month	Male	Female	Total
	%	%	%
Dec-01	76.3	61.5	68.9
Dec-02	77.1	63.0	70.0
Dec-03	77.7	62.6	70.1
Dec-04	77.9	63.8	70.9
Dec-05	78.4	64.8	71.6
Dec-06	79.4	66.0	72.7
Dec-07	79.7	66.7	73.2
Dec-08	79.0	66.6	72.8
Dec-09	77.9	66.1	72.0
Dec-10	79.3	66.6	73.0
Dec-11	78.2	66.1	72.1
Apr-12	78.3	66.7	72.5

[Source: ABS, Labour Force, Australia, April 2012, Catalogue No. 6202.0]

The Award-reliant industries

[97] Between 2000 and 2008, the proportion of award reliance for all industries declined from 23.2 per cent to 16.3 per cent. 43 Table 4.4 shows the proportion of award-reliant employees within each industry between 2008 and 2010, during which time the proportion for all industries declined from 16.5 per cent to 15.2 per cent based on the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 classification. The proportion of award reliance increased in some industries that employed a relatively high proportion of award-reliant employees, such as Manufacturing, Other services and Rental, hiring and real estate services. In contrast, the proportion of award-reliant employees decreased in other award-reliant industries such as Retail trade, Accommodation and food services and Administrative and support services.

Table 4.4: Award reliance by industry 2008–2010 (ANZSIC 2006 classification)

	2008	2010
	%	%
All industries	16.5	15.2
Mining	1.2	1.9
Manufacturing	12.2	14.6
Electricity, gas, water and waste services	5.4	3.1
Construction	9.1	10.0
Wholesale trade	9.0	10.9
Retail trade	28.9	22.3
Accommodation and food services	50.3	45.2
Transport, postal and warehousing	8.3	8.0
Information media and telecommunication services	5.6	5.7
Financial and insurance services	2.2	2.1
Rental, hiring and real estate services	20.2	22.8
Professional, scientific and technical services	5.4	4.2
Administrative and support services	33.9	31.4
Public administration and safety	3.6	1.9
Education and training	8.4	5.1
Health care and social assistance	17.2	17.1
Arts and recreation services	14.2	15.1
Other services	25.4	27.2

Note: EEH data using ANZSIC 2006 begins from 2008. Award reliance is the proportion of employees in an industry that are paid the award rate.

[Source: ABS, Employee Earnings and Hours, Australia, May 2010, Catalogue No. 6306.0.]

[98] In assessing the available economic information, we have looked at developments in the economy as a whole and paid particular attention to developments in the award-reliant industries. It is in these industries where the minimum wage has greatest application and where the greatest practical impact of minimum wage increases might be felt. In specifically addressing information concerning the award-reliant industries, we remain aware of the fact that changes in award rates of pay continue to have a substantial influence beyond those industries.

[99] The information in relation to the award-reliant industries, in respect of output, profitability, wages growth and employment, is consolidated and slightly augmented in Table 4.5.

Table 4.5: Economic indicators by award-reliant industries

	Accommodation and food services	Administrative and support services	Other services	Retail trade	Rental, hiring and real estate services	All Industries
Percentage of employees reliant on award wages 2010	45.2	31.4	27.2	22.3	22.8	15.2
Gross value added: percentage growth over the year to December quarter 2011	2.8	–5.9	4.2	1.8	1.9	2.7
Company gross operating profits: percentage growth over the year to December quarter 2011	12.8	–58.3	–44.3	7.3	16.1	2.2
Wage Price Index: percentage growth over the year to March quarter 2012	3.4	3.4	3.9	3.0	4.2	3.6
Percentage annual wage growth under new collective agreements September quarter 2011	3.3	4.4	4.4	3.6	4.0	3.7
Employment: percentage increase over the year to February 2012	–7.4	–1.2	6.4	–2.8	11.5	0.2
Hours worked: percentage increase over the year to February 2012	–7.8	–2.2	7.6	–1.4	13.5	0.1

[Source: ABS, Employee Earnings and Hours, Australia, May 2010, Catalogue No. 6306.0; ABS, Australian National Accounts: National Income, Expenditure and Product, Dec 2011, Catalogue No. 5206.0; ABS, Business Indicators, Australia, Dec 2011, Catalogue No. 5676.0; ABS, Labour Price Index, Australia, Mar 2012, ABS Catalogue No. 6345.0; DEEWR, Trends in Federal Enterprise Bargaining, September quarter 2011, http://www.deewr.gov.au/WorkplaceRelations/Pages/Reports.aspx; ABS, Labour Force, Feb 2012, Catalogue No. 6202.0.]

[100] The information in Table 4.5 shows:

• diverse outcomes in relation to particular indicators between the award-reliant industries, evident particularly in widely divergent changes in gross operating profits over the year to the December quarter 2011 and changes in employment and hours worked over the year to February 2012, and



• diverse outcomes between the economic indicators for the Accommodation and food services and Retail trade industries, with gross value added and/or operating profits growing well above the economy average, but with employment and hours of work falling. In Rental, hiring and real estate services, there was growth in output, profits, wages and both measures of employment.

[101] The diversity in outcomes between the award-reliant industries and within the Accommodation and food services, Retail trade and Other services industries suggests that factors other than recent minimum wage increases are driving outcomes within those industries. The decline in employment and hours of work shown in the Accommodation and food services and Retail trade industries, in the context of reasonable growth in gross value added and company gross operating profits in those industries, might reflect adjustment within those industries to significant structural pressures associated with the resources boom and changing patterns of consumer demand. These structural adjustments are considered further later in our decision.

[102] Approximately 619 800 award-reliant employees are employed in small businesses, defined by the ABS as having fewer than 20 employees. 44 This represents 45.5 per cent of the 1 361 200 award-reliant employees in total.45 One quarter (25.4 per cent) of award-reliant employees are employed by a business that has more than 100 employees.46

[103] Research Report 1/2012 47 provided estimates of award reliance within small business, drawn from Employee Earnings and Hours (EEH) data.48 They indicate a higher level of award reliance in small business than in larger businesses in all industries other than Mining and Administrative and support services. A lack of data prevented the isolation of the impacts, if any, of award wage adjustments on small businesses. However, after analysis using a range of data sources, the report concluded that:

“award-reliant workers employed in small firms have similar characteristics to award-reliant workers employed in larger firms. To the extent that these employee characteristics are determinants driving employer responses to adjustments in award wages, it is reasonable to assume from this observation that increases in award wages are unlikely to affect award-reliant workers in small firms very differently from award-reliant workers in larger firms, noting that employee characteristics will be only one of a number of drivers of an employer response.” 49

[104] There was little information before us directed specifically to recent economic circumstances of small business. A review of entry and exit rates of businesses employing fewer than 20 workers between 2007–08 and 2010–11 shows no signs of unusual levels of economic difficulties experienced by small business, 50 although it is not possible to isolate award-reliant businesses in the relevant data.

Outlook

[105] Before moving to review the 2012–13 Budget and the May 2012 RBA Statement on Monetary Policy forecasts, we note that GDP growth over the year to June 2012 is now expected to fall short of the Treasury and RBA forecasts at this time last year, consistent with relatively weaker than expected growth recorded in the year to the December quarter 2011. Inflation outcomes in the year to June 2012 are now also expected to be lower than those forecast a year ago, consistent with moderation in inflation in the year to the March quarter 2012.

[106] Uncertainty around global and domestic economic conditions has affected economic forecasts over the past year. While previous forecasts contained both upside and downside risks, it appears that a number of downside risks have prevailed, leading to weaker expectations in this year’s forecasts. This is evident in Table 4.6, which shows GDP growth and inflation forecasts available at the time of the 2010–11 Review were higher than the actual outcomes and more conservative than recent GDP growth and inflation forecasts from both Treasury and the RBA.

Table 4.6: Comparison of Treasury and RBA forecasts given at different dates (Percentage)

Forecaster	Dec-10	Jun-11	Dec-11	Jun-12	Dec-12	Jun-13	Dec-13	Jun-14
GDP growth
Budget 2011 forecasts		2¼		4		3¾
Budget 2012 forecasts				3		3¼		3
RBA May 2011 forecasts		2½	4¼	4¼	3¾	3¾	3¾
RBA May 2012 forecasts				2¾	3	2½–3½	2½–3½	3–4
ABS (actual) data	2.7	2.0	2.3
CPI inflation
Budget 2011 forecasts		3¼		2¾		3
Budget 2012 forecasts				1¼		3¼		2½
RBA May 2011 forecasts		3½	3¼	2½	3	3	3¼
RBA May 2012 forecasts				1¼	2½	2½–3½	2–3	2–3
ABS (actual) data	2.7	3.6	3.1
Underlying inflation
Budget 2011 forecasts
Budget 2012 forecasts
RBA May 2011 forecasts		2½	3	3	3	3	3¼
RBA May 2012 forecasts				2	2¼	2–3	2–3	2–3
ABS (actual) data	2.6		2.2

Note: The Budget and RBA forecast horizons extend over a number of out years. The Budget does not contain forecasts for underlying inflation.

[Source: RBA, Statement on Monetary Policy, May 2012, p. 67, Table 6.1; RBA, Statement on Monetary Policy, May 2011, p. 63, Table 6.1; Australian Government, Budget Paper No. 1:Budget Strategy and Outlook 2011–12, Canberra, 2011,
pp. 2–10; Australian Government, Budget Paper No. 1:Budget Strategy and Outlook 2012–13, Canberra, 2012, pp. 2–12; ABS, Consumer Price Index, Australia, Mar 2012, Catalogue No. 6401.0.]

[107] In a recent address to the ADC Future Summit 2012, RBA Deputy Governor Philip Lowe assessed the differences between the RBA May 2011 outlook and the actual outcomes. 51 He noted that in 2011, the RBA forecast aggregate output to increase by around 4¼ per cent over 2011, with slightly higher aggregate demand growth. He noted that the outcome for aggregate demand was pretty close to the expected outcome (at an above-trend rate of 4½ per cent compared with the forecast 4¾ per cent) whilst aggregate output (at a below-trend rate of 2¼ per cent) was slower than expected. The lower outcome for output was attributed to:

• unexpectedly weak growth in exports, particularly of coal, with it taking longer than expected to remove water from the flooded coal mines and for firms to take advantage of increases in port and rail capacity, with a less than expected growth in the volume of resource exports,



• more of the strong growth in domestic demand being met through overseas production than expected, with the composition of the growth in demand reflecting a larger than expected lift in investment in the import intensive resources sector and a lesser than expected growth in demand not directly related to mining investment,



• weaker than expected private business investment outside the resources sector,



• a lower than expected pick-up in dwelling approvals, and



• weaker than expected public demand.

[108] Deputy Governor Lowe also noted that the recent inflation outcomes have been more subdued than anticipated. He attributed this partly to the higher-than-average share of that growth in demand being met through imports because of the high exchange rate; the heavy weight of resource sector investment in overall demand; as well as the direct effects of the exchange rate appreciation on the prices of imported goods.

[109] Consistent with the first two factors identified by Deputy Governor Lowe, Treasury Secretary, Martin Parkinson, attributed Treasury forecasting error in the 2011–12 Budget principally to errors around exports and imports. 52

[110] The 2012–13 Budget noted that the global outlook remains weak despite an easing in global financial stresses in early 2012. Uncertainty and volatility in financial markets is expected to continue and many advanced countries, such as those in the euro area and the United States, continue the task of rebuilding after the GFC and managing the effects of the sovereign debt crisis. The Budget noted that the risk of a deep financial crisis in Europe remains if there is insufficient progress in the agreed measures. Any recovery is likely to take some time and it is unlikely that countries in this area will make a significant contribution to global growth over the forecast period. Global growth is likely to be driven by emerging economies, particularly in Asia, which continue to grow solidly.

[111] Table 4.7 shows the forecasts for world GDP and for Australia’s major trading partners. Growth in Australia’s major trading partners is expected to be higher than world growth across the forecast period. The Budget noted that forecasts are for below trend growth this year, with risks weighted towards the downside due to the sovereign debt crisis in the euro area.

Table 4.7: Budget forecasts—International GDP growth

	2011	2012	2013	2014
	(outcomes)	(forecasts)	(forecasts)	(forecasts)
World	3.9	3½	4	4¼
Major trading partners	4.2	4¼	5	5

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

[Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2012–13, Canberra, 2012, p. 2-14.]

[112] Economic growth forecasts from the International Monetary Fund (IMF) are shown in Table 4.8. Growth in real GDP in Australia was above the growth in advanced economies in 2011 and below the growth in world GDP. Projections expect growth in real GDP for Australia to remain above advanced economies and below world GDP in 2012 and 2013, with the growth rate for Australia expected to be higher than in 2011.

Table 4.8: IMF real GDP growth forecasts

	2011	2012	2013
	(outcomes)	(forecasts)	(forecasts)
Australia	2.0	3.0	3.5
Advanced economies	1.6	1.4	2.0
World	3.9	3.5	4.1

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

[Source: IMF, World Economic Outlook, April 2012, http://www.imf.org/external/pubs/ft/weo/2012/01/index.htm.]

[113] Domestic economic growth is expected to be at around its trend rate (about 3 per cent) over the next two years, driven by investment in the resources sector, growth in non-rural commodity exports and moderate growth in household consumption. Economic conditions are expected to remain uneven over the forecast period, with the resources and resources-related sectors expected to grow strongly and some parts of the services sector expected to perform solidly. Other sectors, such as retail, manufacturing and tourism, are expected to be adversely affected by the ongoing global uncertainty, high Australian dollar, consumer caution and changes in expenditure patterns.

[114] Strong growth in Asia is expected to support strong demand for iron ore and coal, however an increase in the global supply is expected to affect prices over the next two years. The terms of trade are forecast to remain close to historical highs, despite an expected fall over the next two years and gradual decline over the medium term. This is expected to affect profit growth, with the profits share of income to decline over the next two years.

[115] Business investment is expected to be supported by investment in the resources sector, with a more subdued forecast for other sectors of the economy. Household consumption growth is likely to match income growth as households are expected to continue to save at around current rates. Export volumes are forecast to increase solidly, underpinned by the strong outlook for Australia’s major trading partners which is offsetting the effects of the high Australian dollar. However, the high Australian dollar is expected to continue to adversely affect sectors such as tourism.

[116] Employment growth is expected to strengthen yet remain modest. Structural change in the economy is likely to lead to weaker employment growth in the services sector and strong employment growth in the resources and resources-related sectors, with the uneven sectoral growth continuing to be a downside risk. The unemployment rate is expected to increase slightly over the coming quarters and the participation rate is expected to remain historically high. Wages growth is expected to remain modest over the next two years. Headline and underlying inflation are expected to remain contained over the next two years.

[117] Table 4.9 presents the domestic economic forecasts from the 2012–13 Budget. Australia’s real GDP is forecast to grow by 3 per cent and 3¼ per cent in 2011–12 and 2012–13 respectively. Employment growth is expected to be ½ per cent over the year to the June quarter 2012 and 1¼ per cent over the year to the June quarter 2013, both revised down from forecasts in the 2011–12 Budget. Inflation, as measured by the CPI, is expected to be 1¼ per cent over the year to the June quarter 2012 and 3¼ per cent over the year to the June quarter 2013.

Table 4.9: Domestic economy forecasts^(a)

	2010–11	2011–12	2012–13	2013–14
	Outcomes(b)	Forecast	Forecast	Forecast
Demand and output(c)
Household consumption	3.1	3¼	3	3
Private investment
Dwellings	3.0	–1	0	2½
Total business investment(d)	5.6	18	12½	8
Non-dwelling constructions(d)	8.8	25	14	7½
Machinery and equipment(d)	3.0	16½	12½	8½
Private final demand(d)	3.3	6	5	4¼
Public final demand(d)	3.4	1½	–½	0
Total final demand	3.3	5	3¾	3¼
Change in inventories(e)	0.5	0	0	0
Gross national expenditure	3.8	5	4	3½
Exports of goods and services	0.2	4	4½	4½
Imports of goods and services	10.4	12½	7½	5½
Net exports(e)	–2.0	–2	–¾	–½
Real gross domestic product	2.0	3	3¼	3
Non-farm product	1.9	3¼	3¼	3
Farm product	7.1	–6	2	1
Nominal gross domestic product	8.3	5½	5	5¼
Other selected economic measures
External accounts
Terms of trade	20.6	3¼	-5¾	–3¼
Current account balance (per cent of GDP)	–2.4	–3	–4¾	–6
Labour market
Employment(f)	2.2	½	1¼	1½
Unemployment rate(g)	4.9	5¼	5½	5½
Participation rate(g)	65.5	65¼	65¼	65¼
Prices and wages
Consumer Price Index(h)	3.6	1¼	3¼	2½
Gross non-farm product deflator	6.0	2½	1¾	2¼
Wage Price Index(f)	3.8	3½	3¾	3¾

Note: The forecasts are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level—a trade-weighted index of around 77 and a United States dollar exchange rate of around 103 US cents. Interest rates are assumed to move broadly in line with market expectations at the time of the forecasts. World oil prices (Malaysian Tapis) are assumed to remain around US$126 per barrel. The farm sector forecasts are based on a return to average seasonal conditions over 2012–13 and 2013–14.

(a) Percentage change on preceding year unless otherwise indicated.

(b) Calculated using original data unless otherwise indicated.

(c) Chain volume measures except for nominal gross domestic product which is in current prices.

(d) Excluding second-hand asset sales from the public sector to the private sector.

(e) Percentage point contribution to growth in GDP.

(f) Seasonally adjusted, through-the-year growth rate to the June quarter.

(g) Seasonally adjusted rate in the June quarter.

(h) Through-the-year growth rate to the June quarter.

[Source: Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2012–13, Canberra, 2012, p. 2-12.]

[118] RBA domestic economic forecasts are shown in Table 4.10. Domestic demand is expected to grow at above its long-run average due to growth in mining investment not being completely offset by weak building activity and soft government spending. Export growth is expected to be above trend due to investment in mining and transport infrastructure, although a softer outlook for manufacturing exports has led to a downward revision. The outlook for mining was revised up, with projects still to be undertaken and completed. Business investment intentions outside of the mining sector remain weak due to fiscal consolidation by both federal and state governments.

Table 4.10: RBA economy forecasts, per cent

	Dec 2011	Jun 2012	Dec 2012	Jun 2013	Dec 2013	Jun 2014
GDP growth	2.3	2¾	3	2½–3½	2½–3½	3–4
CPI inflation	3.1	1¼	2½	2½–3½	2–3	2–3
Underlying inflation	2½	2	2¼	2–3	2–3	2–3
CPI inflation (excl. carbon price)	3.1	1¼	1¾	2–3	2–3	2–3
Underlying inflation (excl. carbon price)	2½	2	2	2–3	2–3	2–3

Note: Underlying inflation is calculated by taking the average of the RBA’s weighted median and trimmed mean measures of inflation. Percentage change for the year-ended shown. Technical assumptions include A$ at US$1.03, Trade Weighted Index at 76, Tapis crude oil price at US$125 per barrel.

[Source: RBA, Statement on Monetary Policy, May 2012, p. 67, Table 6.1.]

[119] Employment growth is expected to be subdued with firms to continue to exert caution over hiring intentions and firms reducing staffing levels to improve productivity and competitiveness. Underlying inflation is expected to remain at the lower end of the RBA’s medium-term target band over the next year before increasing later in the forecast period. Headline inflation is expected to remain below underlying inflation at least until the second half of 2012.

[120] Domestic risks stem from an increase in labour shedding as firms adjust to the higher exchange rate, changing consumption patterns and the weak near-term outlook for dwelling investment.

[121] Lower world and domestic growth are a downside risk to inflation, while weaker employment growth could result in slower wage growth. However, the disinflationary effects of an appreciation in the exchange rate may not continue with the exchange rate broadly unchanged over the past year. Other upside risks to inflation could result from the delayed productivity benefits associated with the structural adjustment of the economy, or if demand growth is higher than expected and firms use this to rebuild profit margins.

[122] The Department of Education, Employment and Workplace Relations (DEEWR) Monthly Leading Indicator of Employment is created by combining a select number of economic and employment indicators. The indicator fell for the fifth consecutive month in May 2012, with weaknesses in all four components of the indicator. Cyclical employment has fallen for 14 months (Chart 4.16). 53

Chart 4.16: DEEWR monthly leading indicator of employment

[Source: DEEWR, Monthly Leading Indicator of Employment, May 2012, http://www.deewr.gov.au/Employment/LMI/LeadIndEmploy/Pages/LatestRelease.aspx.]

Structural change in the Australian economy

[123] An assessment of the recent and projected performance of the Australian economy discloses sound aggregate growth and reasonable labour market conditions but with marked differences between industry sectors. In respect of economic growth, this is reflected in broad terms by the 2012–13 Budget outlook for growth which, whilst forecasting aggregate non-farm GDP growth around its trend rate over the next two years, at 3¼ per cent and 3 per cent respectively in 2012–13 and 2013–14, anticipates growth in the non-resources part of the economy at a below-trend average annual rate of 2 per cent over the next two years. 54 The differential growth performance is also reflected in labour market outcomes. The differential outcomes over recent years and forecast into the immediate future are attributed to a number of factors: structural change associated with the strong demand for resources; extremely favourable terms of trade and a relatively high value of the Australian dollar; unsettled global conditions; ongoing consumer caution; and changes in expenditure patterns. Treasury observed that “[w]hile some of the headwinds outside the resources sector are likely to be temporary, some are structural, reflecting the transition that is currently underway across the economy.”55

[124] During the consultations, the Australian Government submitted:

“Indeed, a complex transition is taking place in the economy, only part of which is driven by the resources boom and the high Australian dollar. Further dimensions of this transition are being driven by shifts in household spending patterns towards services, changed attitudes towards debt, broader competitive pressures and technological change, which are leading to shifts in the pattern of demand, both domestic and external. These forces are reflected in significant shifts in the sectoral composition of growth and employment, which have more dimensions than suggested by the simple resources/non-resources divide.”

The complexity of the transition is also reflected in the labour market. While employment growth has been weak in some non-resources sectors, there has been strong growth in others. Despite the geographic concentration of resources activity and employment, the aggregate unemployment rate has remained low and the dispersion of regional unemployment rates has continued to decline since the start of the mining boom. The continued fall in the regional dispersion of unemployment over this period shows that, despite the uneven growth pattern in the economy and across regions, the benefits of the strong economy are being spread broadly across Australia.” 56

[125] ACCI, in its post-Budget submission, 57 noted the impact of changing demand and transition within the economy, citing the following extract from the Budget papers:

“With patterns of demand changing and the economy in a long-term transition, the shift in resources towards the fast-growing sectors of the economy is likely to continue with solid, albeit weaker, employment growth expected in the services sector and strong employment growth in the rapidly expanding but less labour-intensive resources and resources related sectors over coming years…

The solid growth in the services sector and other sectors benefiting from the resources boom is expected to be partly offset by the continued movement of resources out of some of the labour-intensive sectors such as retail and manufacturing.” 58

[126] Deputy Governor Lowe recently noted that:

“the Australian economy is currently going through some major structural adjustments. It is adjusting to once-in-a-century boom in mining investment and the terms of trade, and to a very high exchange rate. It is also adjusting to a return to traditional patterns in household spending and borrowing after more than a decade in which both consumption and debt grew much faster than household income.” 59

[63] In addition to the structural change associated with the mining boom, other structural changes, such as changing consumption patterns, 60 are impacting on some industries and sectors within industries. Whilst aggregate spending is growing in line with income, consumers are spending their money differently to the way they have in the past, with a differential impact upon sectors within the retail industry.

[127] Structural change in the Australian economy and changing patterns of consumption have impacted, and will continue to impact, differentially on the labour market conditions and outcomes across industries, as noted in the passage from the 2012–13 Budget papers cited by ACCI.

[128] The May 2012 RBA Statement on Monetary Policy noted:

“Employment growth picked up a little in the March quarter of 2012, after the flat outcome in 2011. The softness over the past year includes the net effect of structural change, with mining and some service industries expanding, while firms in many other industries have reduced employment to contain costs and improve productivity in the face of modest growth in demand.” 61

[129] A November 2011 assessment of the impact of the post-2003 terms of trade boom associated with the mining boom by Dr David Gruen, Executive Director Domestic, Macroeconomic Group of the Australian Treasury 62, suggests that the structural change associated with the terms of trade boom has progressed without significant net adverse labour market consequences and without a rise in the dispersion in unemployment across Australia. Notwithstanding a growing number of businesses in the trade-exposed manufacturing and services sectors re-evaluating their business models, and in some cases exiting the industry in the wake of the extended period of the high exchange rate,63 Dr Gruen noted that as the mining boom has progressed, the average unemployment rate has fallen, and its dispersion across the country has also fallen, with higher unemployment in individual parts of the country being the exception, rather than the rule.64 Dr Gruen concluded:

“We are seeing a widening gap between the growth rates of the mining (and mining-rated) sectors and the non-farm non-mining sector. But thus far the economy has absorbed this significant structural change with average unemployment remaining quite close to its full-employment rate, and the dispersion of unemployment across the country having declined to well below its level before the boom.” 65

[130] This analysis, together with the ACTU materials on the dispersion of unemployment by state, 66 suggests that the structural change associated with the resources boom and the consequent reallocation of labour has progressed relatively well.

[131] There are, however, transitional issues confronting workers affected by structural change, including the need to retrain or relocate, before they can take advantage of employment opportunities in expanding industries or regions. 67 In this respect, the Budget papers note “the possibility that frictional unemployment could temporarily rise as businesses adjust to changing patterns of demand and workers look to find new opportunities in emerging parts of the economy”.68 Further, the Australian Government submitted that “the combination of continuing strength in the Mining industry, the associated high dollar and the pressure this is putting on other trade-exposed industries such as Manufacturing, Tourism and Education may result in greater sectoral and regional disparity in the period ahead”.69

[132] The ACTU also submitted that the mining boom had proceeded without widening the dispersion of wages growth and output volumes. It provided evidence that the dispersion of WPI growth by industry is no greater than its typical level 70 and submitted that output has been around its typical level of dispersion between industries in real (volume) terms,71 citing Connolly and Orsmond of the RBA:

“for several measures the rate of structural change has increased since the early 2000s, which corresponds with the onset of the mining boom. For the industry measures, this is particularly noticeable in the measure for nominal output – reflecting the sharp rise in commodity prices over recent years – and is also evident in the investment measure. In contrast, the degree of structural change in the share of various industries in real output and employment has not been especially large over recent years.” 72

[133] It is necessary to view the aggregate and sectoral economic performance in the recent past and into the future in the context of the structural change currently occurring. In this context, we recognise that some sectors in the Australian economy face more difficult trading conditions than aggregate data suggest. In giving effect to the various statutory considerations which we must take into account, we have had regard to the aggregate economic data and to available sectoral information, with specific consideration of the circumstances of the award-reliant industries. We have also taken into account the different circumstances between industries, and sectors within industries, and the differential impact upon them of structural change. But it is important to appreciate that the fixation of minimum wages cannot be based principally on the position of those sectors facing the most difficult economic circumstances, given the range of statutory considerations which we are required to take into account.

[134] In fixing fair and relevant minimum wages in the context of consistent minimum wage rates, we must have regard to the economy as a whole. Like monetary policy, 73 minimum wage fixation has a national focus.

Conclusion

[136] Economic conditions over the past year have been reasonably strong, driven by the resources and related sectors, with some softening in labour market conditions in the second half of 2011 and a moderation in inflation. Economic growth was lower than anticipated at the time of the 2010–11 Review largely as a result of weaker net exports. The high value of the dollar, the very high levels of investment in the resources sector, changing consumer patterns of spending, the persistence of more normal levels of household saving, and the business adaptations are causing conflicting signals in the main economic indicators. The difficulty this poses for forming a clear view of economic performance is amplified by the volatility, from quarter to quarter, in the value of important measures such as growth in company gross operating profits, inflation, hours worked and gross value added by industry.

[137] In the absence of major adverse external shocks (natural disasters or overseas disturbances), the Australian economy is expected to perform well in 2012–13, with average growth in output and employment and modest wage and price inflation. Aggregate growth is expected to be at around its trend rate, with household consumption expected to increase by 3 per cent per annum over the next two years. Mining investment will drive growth, with the non-resources part of the economy forecast to grow at a below-trend average annual rate of 2 per cent over the next two years.

[138] Annual inflation has been volatile, falling from 3.1 per cent in the year to the December quarter 2011 to 1.6 per cent over the year to the March quarter 2012. The significant reduction, measured over this short time period, reflects the passing of the impact on fresh produce prices of adverse weather conditions in early 2011 and the impact of the peak of the exchange rate on prices of tradeable goods. Inflation is forecast to be around the middle of the RBA target band of 2–3 per cent, abstracting from the impact of the carbon price.

[139] Productivity growth has improved since the end of 2010, with trend gross value added per hour worked in the market sector increasing by 2.2 per cent over the year to the December quarter 2011 and GDP per hour worked and GDP per capita increasing by around 1.4 per cent over the same period.

[140] On average, business profitability has remained robust and there is little evidence of unusual levels of bankruptcy or entry and exits of small businesses. This is consistent with the small growth in real unit labour costs in the past year, following a decade in which such costs have mostly declined. In 2012, real unit labour costs are 5.9 per cent lower than they were a decade ago. This does not deny that some enterprises and sectors of some industries are experiencing difficult times, both in award-reliant industries and in other parts of the economy.

[141] Most measures indicate that the demand for labour remains quite strong. Unemployment in April 2012 was at historically low levels and growth in hours worked rebounded quite strongly in the first four months of 2012, from its sharp falls during 2011. Employment growth was more modest and varied considerably between industries.

[142] We note, though, that the continuing high levels of unemployment among young people, the reasonably elevated underemployment rate, some decline in the participation rate and the employment to population ratio for men are signals of some fragility in the labour market.

[143] Wages growth has been largely unexceptional over the past 12 months. AWOTE has risen at about its average rate for the past decade, while growth in the WPI and in new collective agreements has been a little below average. Wages growth in the award-reliant industries has been mixed, with some below and some above the industry average growth in the WPI and in new collective agreements.

[144] The strength of the resources sector is having two major consequences for the Australian economy. First, it is underpinning growth in output and employment. Secondly, it is driving structural change in output and employment, through changing both the composition of demand and the relative prices of tradeable and non-tradeable goods and services. Structural change is also being driven by technological change and by changing consumer spending patterns.

[145] The structural change is not having a uniform impact on the award-reliant industries: some are increasing hours worked, output or profitability; while others are contracting in one or more of these dimensions.

[146] There is evidence (suggestive rather than compelling at this stage) that Australian workers and enterprises are responding quite effectively to the changing patterns of demand. This evidence includes:

• the relatively low unemployment, in total and across the regions, even though regional employment growth (at least at state level) has been very different,



• the profitability of some sectors (including award-reliant sectors) that are not direct beneficiaries of the resources growth,



• the uplift in productivity growth, in the context of a secular decline, and



• the observed decline in the dispersion of unemployment by region and wages growth by industry.

[147] It is likely that the structural change that is occurring will cause some rise in the mismatch between employee skills and the skills wanted by employers, leading to increased structural and/or frictional unemployment.

[148] In summary, the economic outlook remains sound, with growth continuing around trend levels in aggregate, with continuing relatively low unemployment and inflation moderating. However, the outlook for growth is uneven, with the resources sector driving domestic growth and the non-resources sector growing less strongly. Global risks continue, most notably those associated with continuing sovereign debt problems in Europe.

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

[149] The minimum wages objective and the modern awards objective both require the Panel to take into account relative living standards and the needs of the low paid. 74 This chapter discusses various indicators of relative living standards and needs.

Real and relative earnings

[150] The relative living standards of the low paid are affected by the level of wages that they earn, and by the circumstances of the households in which they live. We start with an examination of how the wages of award-reliant employees have changed relative to prices and to various measures of average wages.

[151] With the exception of the 2010–11 Review, the adjustments to award wages over the past decade have been by “flat dollar” amounts. As a result, the higher the award rate of pay, the lower the amount by which it has increased in percentage terms. This means that: the higher the rate of pay the more likely it is to have fallen in real terms; and that over time wage relativities in awards have become more compressed. Flat dollar increases have also provided greater scope to increase the national minimum wage and its equivalents. As the Australian Government observed, “the NMW increased by 1.2 per cent in real terms in the previous two years under the FWA’s decisions.” 75 These points are illustrated in Chart 5.1 below.

Chart 5.1: Real value of selected minimum wage rates—December quarter 2001–March quarter 2012

Note: Minimum wage rates are measured at end of quarter, except for the September quarters since 2007, which measures the minimum wage rates as of 1 October in each year. Real values are obtained by adjusting for changes in the CPI.

[Source: ABS, Consumer Price Index, Australia, Mar 2012, Catalogue No. 6401.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010; Professional Employees Award 2010.]

[152] The ACTU submission calculated real changes in award rates using both the ALCI and the CPI, the former having risen a little faster over the decade. It showed that the ALCI for employee households increased by more than all award rates of pay from the June 2005 quarter to the December 2011 quarter: over this period, the “real”, ALCI-adjusted, award rates fell by $32 per week at C10 and $12 per week at C14. The ACTU submitted that “the Panel should take this ‘multi-year erosion in the purchasing power of minimum wages into account’ as it ‘suggests that the ability of low-paid workers to meet their needs has fallen.’” 76

[153] ACCER also highlighted the real decreases for some award rates over the past decade. It claimed that, based on results using its preferred measure of labour productivity, since 2000 “[e]ven in those cases where real safety net wages have been increased, the increases have not been a fair reflection of productivity improvements.” 77 However, ACCI took a different view, arguing that “[t]here is no legislative presumption that requires the Panel to award an increase in each and every Review which is at least equivalent to or exceeds inflation forecasts.”78

[154] Over the past decade, all award rates of pay have fallen relative to measures of median and average earnings. The ratio of the C14 rate to median weekly earnings of full-time employees has decreased from 57.9 per cent in August 2000, to 54.3 per cent in August 2010, though this ratio has been broadly stable over the past few years. 79 Growth in the C14 rate over the past decade has been close to growth in the WPI.80 The ACTU claimed that “[t]his growing gap in relative earnings must mean a growing gap in relative living standards, if other factors are held constant.”81 By contrast, Ai Group emphasised that the purchasing power of Australia’s national minimum wage and its value relative to median and average earnings remains high by international standards.82 While providing evidence consistent with this conclusion, Australian Council of Social Service (ACOSS) submitted that “the proportion of Australian employees who are ‘low paid’ (defined in this case as earning less than two-thirds of median full-time wages) is close to the median of 15 countries recently surveyed by the OECD”.83 The ACTU noted that the “minimum wage bite” had fallen in Australia over the past decade (by 3.6 percentage points)—Australia being one of the few countries for which this is true.84

[155] Chart 5.2 shows the changes in the nominal value of the C14 and C10 award rates, compared with changes in AWOTE, average weekly earnings (AWE) and the WPI, over the 10 years to December 2011. It shows that the award rates have grown more slowly over the decade than have the measures of average pay, although the C14 rate has almost kept pace with the WPI. Given the flat rate nature of most past increases to award rates, all rates above C10 have fallen further behind average pay increases than is displayed for the C10 rate.

Chart 5.2: Growth in C14 and C10 relative to AWOTE, AWE and WPI (cumulative percentage change)

Note: This chart reflects data for the period December quarter 2001 to March quarter 2012. AWOTE and AWE for full-time adults are measured at mid-month of the quarter and are seasonally adjusted estimates. WPI is the index for total hourly rates of pay excluding bonuses in both private and public sectors and is a seasonally adjusted estimate.
[Source: ABS, Labour Price Index, Australia, Mar 2012, Catalogue No. 6345.0; ABS, Average Weekly Earnings, Australia, Feb 2012, Catalogue No. 6302.0; Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).]

[156] While low-paid employees are not necessarily paid award rates, it is useful to note the broader changes in the overall levels of earnings inequality. The Australian Government provided the following chart (Chart 5.3), 85 which shows that real weekly earnings of full-time workers have become progressively less equal in the past decade: for each decile, the lower the earnings, the lower the rate of growth in earnings. This picture of the fanning out of the earnings distribution provides the context in which to assess movements in award wages. It should be noted that, while relatively small, there has been some growth in the real earnings of even the lowest decile.

Chart 5.3: Real weekly total earnings (full-time adult non-managerial employees) by percentile—1996–2010

Note: The EEH Survey was not conducted in 1997, 1999, 2001, 2003, 2005, 2007, 2009 and 2011. Results for these years have been obtained through linear interpolation. All series deflated by the all groups CPI. Index base 1996 = 100.
[Source: ABS, Employee Earnings and Hours, Catalogue No. 6306.0), various years, published and unpublished data.]

Income

[157] The Australian Government calculated changes in real disposable income for selected household types with a national minimum wage earner, covering the period between 1 January 2007 and 1 January 2012. These calculations take account of changes in both the purchasing power of the national minimum wage and the effects of changes to tax and benefit regimes. They show that all of the selected household types received a rise in their real disposable income over that time period. Single parents with a dependent child received the highest increase (8.1 per cent), and single-earner couples without dependent children received the lowest increase (0.8 per cent). Both a single person, and a two income couple (each on the national minimum wage) had a rise of 3.5 per cent. Despite these rises in real disposable income, the Australian Government, the ACTU and ACCER all provided evidence that there has been some increase in inequality in disposable income among households over the past decade.

[158] ACCER calculated the rise in disposable income for award-reliant families (with two children) relative to a family with a wage earner on AWOTE, over the period 2000 to 2011, (incorporating the “Schoolkids” bonus as announced in the 2012–13 budget). Table 5.1 summarises their key results.

Table 5.1: Rise in Components of Income Between Safety Net-Dependent and AWOTE Families (Couple or Sole Parent with Two Children Families)—2000–11

Rise in components of disposable income	NMW	C10	AWOTE
% wage increase, net of tax	55.0	51.2	67.9
% increase in transfers	74.7	74.7	189.5
% increase in disposable income	60.9	57.4	80.6

[Source: ACCER supplementary submission, at p. 2, para. 6.]

[159] The table shows that families with two children and a single wage earner on the national minimum wage or the C10 award rate have received increases in their (nominal) disposable incomes over the period 2000–11. However, these increases have lagged behind those of families with a wage earner who receive AWOTE. Over this period, the CPI rose by 37 per cent, so that there has been a substantial rise in the real disposable incomes at all the wage rates considered, for single earner families with two children.

[160] No evidence was presented by the parties on changes in the real disposable incomes of low-paid worker households since the 2010–11 Review decision.

[161] The tax-transfer system has a significant role to play in alleviating the impact of earnings inequality and supporting the living standards of low-paid workers. As indicated in the Annual Wage Review 2009–10 decision (the 2009–10 Review decision), wages do not by themselves entirely determine the living standards of the majority of individual wage earners who live in households with others. 86 We agree with the views expressed by the Panel in the 2009–10 and 2010–11 Review decisions that:

“minimum wages and the tax/transfer system are both relevant to the maintenance of an effective safety net for the low paid: each has its part to play. Wages play a particularly important role in the maintenance of disposable incomes for households not receiving income support payments.” 87

[162] These matters have assumed particular relevance in these Review proceedings and we have received a number of submissions dealing with the Household Assistance Package associated with the introduction of a price on carbon, the other tax-transfer measures announced in the 2012–13 Budget and the proposed increases in the Superannuation Guarantee Levy.

[163] The Australian Government will introduce a carbon price from 1 July 2012 which is expected to increase consumer prices by 0.7 per cent in 2012–13, as measured by the CPI. The Household Assistance Package of tax cuts and increases to transfer payments announced in May 2012 is said to be targeted at low- and middle-income households to help with the impact of the carbon price and to ensure that the most vulnerable households are not left worse off.

[164] Under these arrangements about 90 per cent of low-income households will receive assistance that exceeds, by around 20 per cent, their expected average price impact. 88 The Australian Government submitted that this additional assistance:

“provides a buffer to protect low income households who face higher costs than the average for that household type (for example they may live in an older building and hence have higher heating costs than average, or they may live in a region of Australia with higher than average heating or cooling costs). It also ensures that sufficient assistance is available to meet the average expected price impact for all pensioners, including part rate pensioners.” 89

[165] Given the level of assistance provided through the tax-transfer system, the Australian Government submitted that the Review should not be used as an avenue to provide further assistance. No party contended otherwise, though some parties submitted that the degree of overcompensation provided in the Household Assistance Package should be taken into account in these proceedings so as to reduce the level of increase that the Panel would otherwise determine. In particular, Ai Group submitted that:

“[i]n short, [the household assistance measures] will boost real disposable incomes for low and middle income households and these impacts should be taken into account in the consideration of the role changes to minimum wages [have] in addressing the needs of the low paid and relative living standards.” 90

[166] We agree with the proposition that this Review should not provide any additional assistance to compensate for the anticipated price effects associated with the introduction of a price on carbon. Compensation has already been provided through tax cuts and transfer payments and further compensation by minimum wage adjustments would amount to double dipping. It follows that we will, in effect, abstract the projected 0.7 per cent increase in the CPI from our deliberations.

[167] We are not persuaded that the degree of overcompensation or buffer provided in the Household Assistance Package should be taken into account so as to reduce the level of increase that we would otherwise determine, for two reasons.

[168] First, the overcompensation or buffer is targeted at low-income households, particularly those in receipt of pensions. It is not targeted at those in low-paid employment per se and, as we have noted previously, low-paid employees live in a variety of household types. In such circumstances it is not appropriate to provide any general discount on the level of increase in minimum wages we would otherwise determine. Such a discount would unfairly impact on some low-paid employees who have not been the beneficiaries of any overcompensation.

[169] The second reason for not discounting our determination on account of these matters is that the overcompensation is based on a projection—the actual net effect of these arrangements will not be known for some time. We will be in a better position to assess the impact of these matters on the low paid in subsequent reviews.

[170] We now turn to the other tax-transfer measures announced in the 2012–13 Budget.

[171] In its post-Budget submission, ACCI made the following submission in relation to the increases in transfer payments announced in the Budget:

“these new measures will reduce the size of the rise in the minimum wage necessary to maintain the real after-tax and transfer payments of low-income earners.” 91

[172] The other tax-transfer measures announced in the 2012–13 Budget form part of the general context in which the Review is taking place, but we are not persuaded that they warrant a reduction in the quantum of the minimum wage increase we have determined. We note that the Budget measures are largely targeted at those with particular family circumstances and do not have general application to all low-paid employees.

[173] We now turn to the proposed changes in the Superannuation Guarantee Levy arrangements.

[174] The Superannuation Guarantee (Administration) Amendment Bill 2011 has been passed by the House of Representatives and is currently before the Senate. The Bill increases the Superannuation Guarantee Levy from 9 per cent to 12 per cent over the period from 1 July 2013 to 1 July 2019.

[175] A number of parties submitted that we should announce our intention to take the proposed increases in the Superannuation Guarantee Levy into account in subsequent reviews. We are not persuaded that it is appropriate to adopt such a course. The proposed increases have not yet been passed by the Parliament and in any event are not proposed to start to take effect until 1 July 2013. These matters can be the subject of further consideration in the next review.

Financial stress and deprivation

[176] The Australian Government’s submission presented data on financial stress indicators from Wave 9 (2009) of the Household, Income and Labour Dynamics in Australia (HILDA) survey. It showed that 27.0 per cent of adult low-paid employees experienced at least one of the seven indicators of financial stress in 2009, compared to 15.8 per cent of adult employees who were not low paid. 92 (Low pay was defined as less than two-thirds of median hourly earnings.) The statistical reporting for the annual wage review, which drew on data from the HILDA survey and the ABS’ Household Expenditure Survey and General Social Survey also showed that low-paid employee households were significantly more likely to experience financial stress or deprivation than other employee households.93 There is little sign in the data that there has been a systematic increase in the degrees of financial stress among low-paid employee households over the last five or so years.

Expenditure

[177] As part of the research program for this Review, statistical analysis was undertaken of the expenditure patterns of households with low-paid workers. The analysis was undertaken using data from the ABS’ Household Expenditure Survey for 2009–10. While this research did identify some differences between the expenditure patterns of households with low-paid workers and other employee households, these differences were found to be minor. 94 Based on these results, it is expected that, in most quarters, average price and living cost changes for households with low-paid workers will be similar to changes in the CPI and the ALCI for employee households.

[178] The Australian Government provided evidence that the distribution of low-paid employees across the distribution of household expenditure was more even than that across the distribution of household income. For example, 20 per cent of low-paid employees were in the bottom decile of equivalised employed household disposable income, but the comparable figure for household expenditure was 13 per cent. It concluded that “[t]his again suggests that an individual’s own earnings may not provide an accurate measure of their living standards.” 95

Report on measuring the needs of the low paid

[179] On 30 September 2011, the former President of Fair Work Australia directed Senior Deputy President Watson and Professor Richardson to conduct an investigation and prepare a report for the Panel on the most pertinent and valuable proxy measures of the needs of the low paid and how these are changing over time. This investigation involved a request for written submissions, and consultations between the two Panel Members and interested parties. The resultant report, Measuring the Needs of the Low Paid, was issued on 14 December 2011 and concluded that:

“[40] The Panel should have regard to a range of relevant data in relation to the needs of the low paid, all of which needs to be considered and weighed up, with the exercise of appropriate judgment. These include the relative position of low-paid individuals and households in the distribution of earnings, of income and of expenditure, and levels of financial stress and deprivation. Changes in all of these indicators can also provide relevant information for the Panel’s consideration.

[41] The current [Henderson poverty line] data and the [Social Policy Research Centre] budget standards data provide little guidance to the Panel because the original research upon which they are based lacks contemporary relevance.” 96

Conclusion

[180] Evidence on the needs of the low paid and their relative living standards takes two forms. One is general information on changes in the real and relative value of the earnings (gross and disposable) of low-paid and award-reliant workers and their families. The other is direct survey evidence on the changing level of indicators of the adequacy of income. We consider these two perspectives in turn.

[181] The real value of the national minimum wage and its equivalents has increased over the past decade, and over the past two years. This is true to a lesser extent for award rates of pay up to and including the C10 level. Award rates of pay above the C10 level have declined in real terms over the decade.

[182] It is a reasonable inference that the ability of most award-reliant workers to meet their needs from their own pay has declined with the fall in the real value of their wages.

[183] Except at the national minimum wage level, the value of all award rates of pay has fallen relative to the various measures of movements in average rates of pay. The national minimum wage has risen over the past decade at about the same rate as the WPI. This implies that the lowest award rate has kept pace with increases in other rates of pay for non-managerial employees. In this sense, their relative position has been maintained. But over the past decade, average earnings have risen faster than individual rates of pay, caused by the workforce moving into higher paid jobs over time. As a consequence, those reliant on award rates of pay have fallen behind the average earnings of workers and, in this sense, have not retained their relative standard of pay.

[184] We note that inequality in the distribution of earnings among all non-managerial full-time workers has also increased over the decade, albeit there has been a small rise in the real value of even the lowest decile of earnings.

[185] Most award-reliant workers do not rely entirely on their own earnings to meet the material needs of themselves and their families. The tax-transfer system plays an important role in supporting the incomes of low-paid workers, including those receiving award rates. The real disposable incomes of a wide range of household types that are reliant on award wages have increased over the past 10 and five years, as a result of changes to the tax-transfer system. The changes have particularly benefited families with children.

[186] The changes to taxes and transfers have led to an improved capacity for award-reliant households to meet their needs, although single adults have had very small, if any, real increases in their disposable income.

[187] In relation to recent changes in the tax-transfer system we have concluded that we should not provide any additional assistance to compensate for the price effects associated with the introduction of a price on carbon. Nor are we persuaded that the degree of overcompensation or buffer provided in the Household Assistance Package should be taken into account so as to reduce the level of increase we would otherwise determine. The other tax-transfer measures announced in the 2012–13 Budget form part of the general context in which the Review is taking place, but we are not persuaded that such changes warrant a reduction in the quantum of the minimum wage increase we have decided.

[188] As to the proposed increases in the Superannuation Guarantee Levy, those matters are not relevant in the context of this Review but can be the subject of further consideration in the next review.

[189] Direct evidence of the extent to which award-reliant families are able to meet their needs is derived from measures of their financial stress and inability to undertake basic activities that are normal for higher paid households. On this evidence: low-paid households show more signs of financial stress than higher paid households; low-paid workers are scattered across the whole of the household income distribution (and more evenly across the distribution of household expenditure); and the differences in degrees of financial stress between lower and higher paid households, while significant, have not changed in a systematic way in recent years.

6. Promoting Social Inclusion through Increased Workforce Participation

[190] In the context of an annual wage review, the Panel must take into account the need to promote social inclusion through increased workforce participation.

[191] In the 2009–10 and 2010–11 Review decisions the Panel accepted that social inclusion encompasses both the obtaining of employment and the pay and conditions attaching to the job concerned. 97

[192] In general, the parties reiterated their previous positions on how the promotion of social inclusion should be defined for the purpose of annual wage reviews, and the links between social inclusion and workforce participation. ACCI and Ai Group continued to maintain that, in terms of the promotion of social inclusion, the Panel should focus upon the obtaining of employment. 98

Minimum wages, employment and the demand for labour

[193] Submissions from state governments and employer groups generally recommended that the Panel take into account the relatively weak recent economic climate and reduced employment growth. For example, Ai Group urged:

“the Minimum Wages Panel to exercise caution in deciding on the minimum wage increase, as in the current fragile economic environment any significant increase in minimum wages is likely to cause businesses to curtail their demand for labour and will not contribute to higher workforce participation. ”99

[194] By contrast, the ACTU argued that the Panel can continue to be confident that the impact of moderate minimum wage increases on employment is outweighed by other factors. 100 It noted that the “strongest period of employment growth in recent years came after the Panel awarded a $26 per week increase to award wages in [the 2009–10 Review]”.101

[195] ACOSS noted that the level of the minimum wage was not a significant determinant of labour demand in respect of many of the long-term unemployed. It submitted that the main factors preventing most from securing employment are very low skill levels and personal and social barriers to employment, with those who remain unemployed after many years of strong growth in the economy being generally drawn from the most disadvantaged sectors of the community. ACOSS illustrated this proposition by reference to the Job Compact in the mid 1990s that guaranteed all long-term unemployed people on income support a temporary paid job for six months. It noted that most of the Job Compact positions were fully subsidised jobs in the public and community sectors because private sector employers were not prepared to employ long-term unemployed people on the scale required, even though half the wage was paid by the government. 102 It submitted that even a large reduction in relative minimum wages would not substantially reduce unemployment amongst this group, with the reduction of barriers to work for the long-term jobless requiring more investment in programs that improve their skills, work capacity, health and personal circumstances.

[196] Submissions were put in relation to the potential impact of minimum wage increases on the demand for labour, drawing on material concerning the relationship between minimum wage rises and employment levels; and information drawn from surveys; and research undertaken for Fair Work Australia and the Australian Fair Pay Commission (AFPC) concerning employer responses to minimum wage increases.

[197] ACCI drew our attention to research undertaken in respect to teenage employment in New Zealand by Hyslop, Maré, Stillman and Timmins (Hyslop et al.). 103 The ACTU referred to research by Dube, Lester and Reich in the United States, and by Dolton, Rosazza-Bondibene, and Wadsworth in the United Kingdom, as it did in the 2010–11 Review,104 The ACTU also relied on an evaluation of the effects of the United Kingdom Minimum Wage by Manning,105 a paper by Hyslop and Stillman,106 and the Hyslop et al. research referred to by ACCI.

[198] The Hyslop et al. paper apart, the additional papers raised in the current Review did not find significant adverse effects associated with minimum wage increases. The Manning paper noted, in relation to the UK experience:

“There is now a consensus that, at the moderate levels of the minimum wage we have experienced in the UK, there has been very little if any adverse effect on employment. The LPC [Low Pay Commission], which includes employer-representatives, has been very thorough in investigating the impact of the NMW so far, primarily through commissioned reports from independent academics, and has concluded that there is no evidence of resultant job losses.” 107

[199] The New Zealand studies assessed the impact of an increase in the real value of minimum wages for teenagers in New Zealand of more than 60 per cent for workers aged 16–17 and 100 per cent for workers aged 18–19 years, between 1999 and 2007. The research by Hyslop et al., published in 2008, found that these increases resulted in initial high teenage-employing firms reducing their employment of teenagers by 2.5 to 3 percentage points in the main teenage-employing industries such as Retail trade and Accommodation, cafes and restaurants, and about 1.2 percentage points for firms in other industries between 2000 and 2007 (the longer run). However, when analysing annual changes, they find small and insignificant employment reductions for firms in the main teenage-employing industries and positive effects for firms in other industries. 108 That finding in respect of annual changes is consistent with the findings of Hyslop and Stillman in their paper which was published in 2004.

[200] The New Zealand studies are of limited immediate relevance to our deliberations, however, since they assessed the impact of an increase in the real value of minimum wages for teenagers found by Hyslop et al. to have “plausibly raised average teenage wages by 5–10 per cent relative to adult workers”. 109 Research into the impact of relative wage increases of that magnitude provide little guidance in relation to wage increases under s.285 of the Act, which have not increased the relative level of minimum wages by that magnitude.

[201] As noted in previous annual wage review decisions, the relevance of overseas studies is reduced by the particular character of minimum wage fixation in Australia. However, the further studies raised in the current Review add to the case that a modest rise in minimum wages has a very small or even zero effect on employment.

[202] ACCI relied on research undertaken for the AFPC 110 and for Fair Work Australia111 concerning the effects of minimum wage-setting at an enterprise level. It also drew on a survey of its members, conducted in 2012, which included a group of 56 award-reliant enterprises.112 A number of other employer associations also provided information drawn from surveys of their members.

[203] The ACCI and other employer surveys indicate that a minimum wage increase has negative employment effects for some employers in some industries. However, the surveys cannot be relied on for any conclusions about the aggregate effects either from an industry or an economy-wide perspective. The survey respondents are small in number, self-selected and not representative of employers generally. Further, the survey results are not consistent with research undertaken by the Workplace Research Centre, University of Sydney, 113 based on detailed case studies of 20 enterprises which employed a significant number of employees on minimum wages.

Work incentives and labour supply

[204] The Australian Government submission provided modelling that showed improved household disposable income, for all hypothetical households modelled, as a result of a member taking up a full-time job paid at the national minimum wage. Again the highest incentives to take on low-paid work were for single adults and the lowest incentives were for couples and single-parent households with dependent children; however the gains for all the households modelled from taking up full-time work were still substantial. 114

[205] In its submission in reply, the ACTU modelled effective marginal tax rates for a range of hypothetical households with persons earning the national minimum wage, in the case that the ACTU’s claim of an increase of $26 per week was granted. Most of the households modelled would retain the majority of the increase to the national minimum wage as an increase in household disposable income, with the exceptions being the adult households in which one spouse is not employed, and the single adult household with a child where the adult is employed part-time. 115

Labour market transitions

[206] Data on labour market transitions from the HILDA survey were provided in Fair Work Australia’s statistical reporting for the Review. 116 The Australian Government submission also provided HILDA data on labour market transitions. These data showed that “[f]or a substantial proportion of those unemployed or [not in the labour force], when they entered employment, the employment was in low paid work”.117

[207] Information published in the Statistical Review based on the HILDA survey 118 shows that about half of the low-paid workers in 2009, measured as the bottom quintile, remained low paid in 2010 and around a third of those who were low paid in 2006 remained low paid in 2010. Drawing on the HILDA survey data, the Australian Government submitted that over the four year period to 2010, 47.2 per cent of low-paid male employees and 53.5 per cent of low paid female employees continued to be in low-paid employment.119 It concluded:

“Given a large proportion of low-paid workers remained lowly paid over a two or four year period, increases in the NMW may be an important avenue to maintain the relative living standards of people who persist in low paid employment, especially for those unwilling or unable to change employment or achieve higher wages and for those who live in low-income households.” 120

[208] The Australian Government and the ACTU both submitted that changes in the national minimum wage are important for those who persist in low-paid employment. However, the ACTU submission also noted that, based on the results from the statistical reporting “many workers move from jobs with low pay to jobs with mid-range pay”. 121 It argued that the relative living standards of those who are temporarily in low-paid work are also important:

“We note that the minimum wages objective does not instruct the Panel to take into account the relative living standards and needs of the low paid when averaged over their working lives – rather, we submit that the wages-setting criteria are directed towards ensuring a fair safety net of minimum wages for all workers who are low paid at a particular point in time, regardless of how long they remain in that state.” 122

[209] The statistical reporting used two measures of low pay: the bottom quintile of the earnings distribution and less than two-thirds of median hourly earnings. The ACTU preferred the first measure as “[t]he two-thirds of median measure excludes all award-reliant workers above the C10 rate of pay [while] the bottom quintile measure includes all workers up to and including the C7 rate”. 123 The ACTU also noted that, while data limitations preclude analysis from focusing solely on the mobility of workers receiving award rates of pay or the national minimum wage, “the Panel must be aware that the workers whose mobility is measured in HILDA-based studies are not identical to the workers directly affected by Annual Wage Reviews”.124

Conclusion

[210] Both getting a job and the pay and conditions attaching to that job are relevant when considering social inclusion. There was no dispute that employment is an important component of social inclusion. We accept also that the pay and conditions of work are relevant because they impact upon an employee’s capacity to engage in community life and the extent of their social participation.

[211] The potential impact of increases in minimum and award wages on the demand for labour is relevant because the level and pattern of the demand for labour affects individuals’ prospects of getting a job. In this regard, our attention was drawn to studies concerning the relationship between minimum wage rises and employment levels. The New Zealand studies evaluated the impact of a 5-10% relative increase in minimum wages for teenagers. These provide little guidance in assessing more modest changes in minimum wages. Whilst the relevance of overseas studies is reduced by the particular character of minimum wage fixation in Australia, the recent UK and US studies referred to in the current Review provide some additional support for the conclusion that a modest rise in minimum wages has a very small or even zero effect on employment. Whilst surveys relied upon by some employer associations support the proposition that minimum wage increases have negative employment effects for some employers, in their current form these surveys cannot be relied on for any conclusions about the aggregate effects either from an industry or an economy-wide perspective.

[212] Data on labour market transitions showed that a substantial proportion of the unemployed entered employment through low paid work. Whilst most moved over time into higher paid work, about half remained low paid in the short-term and a substantial minority remained low paid several years later. Changes in the national minimum wage are important for those who persist in low-paid employment and to the ability to engage in community life whilst in low paid employment for those who later move to higher paid work. Further, as ACOSS noted, by reference to the Job Compact program of the mid 1990s, the level of the minimum wage was not a significant determinant of labour demand in respect of many of the long term unemployed.

[213] Incentives to work remain a relevant issue for consideration in assessing social inclusion. The effect of minimum wage levels on the incentive to work must be balanced against any opposing impact on the demand for labour. The demand and supply factors at work must be considered in the context of broader labour market developments including, in current circumstances, a continuing low level of unemployment, but a recent volatility in growth in demand for labour. There has been considerable diversity in employment growth between industries but, as discussed earlier in our decision, such variation has most likely been driven by structural adjustment in the economy, rather than recent increases in minimum wages.

7. Encouraging Collective Bargaining

[214] In giving effect to the modern awards objective the Panel must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, and in that context the Panel must take into account the need to encourage collective bargaining.

[215] The Australian Government discussed the indirect effects of minimum wages increases on the quantum of increases sought in collective agreement negotiations citing its most recent data:

“25. The Panel’s decision can also affect other wages indirectly including by acting as a floor for wage increases or workplace bargaining.

26. According to the Department of Education, Employment and Workplace Relations (DEEWR) Workplace Agreements Database, as at September 2011 around 39.2 per cent of current federal enterprise collective agreements (CAs) covering 26.5 per cent of all employees under Federal enterprise agreements are linked in some way to annual wage review outcomes.

27. Only 14.8 per cent of all federal CAs, covering 6.2 per cent of employees, automatically flow on annual wage review decisions. For the remaining 24.4 per cent that are also linked in some way to annual wage review outcomes, conditions and/or qualifications of some type apply.” 125

[216] ACCI, the Australian Federation of Employers and Industries (AFEI) and Business SA agreed with the Australian Government position that minimum wage increases can indirectly affect bargaining claims.

[217] Some submissions cautioned against an increase to minimum wages that would act as a disincentive to bargain. Ai Group argued that in order to encourage enterprise bargaining, the 2012 increase in the national minimum wage order “must be at a level significantly below average enterprise agreement wage outcomes”. 126 Similarly, ACCI warned that minimum wage increases should not discourage employers and employees from engaging in collective bargaining, and that any significant increase in award-based minimum wages will discourage bargaining. ABI also noted that providing award wage increases that exceeded increases received by non-award employees in the same sector would discourage bargaining. AFEI submitted that “employers routinely report that there is little incentive to enter into enterprise agreements because of the high minimum wage. Those employers who are compelled to bargain are subject to additional pressures given the already high minimum rates”.127

[218] In contrast, in its submission in reply, the ACTU rejected the view that significant minimum wage increases “automatically or necessarily have a negative impact on collective bargaining”. 128 The ACTU argued that there are strong incentives to bargain where employees are able to do so, as “the gap between award rates and market rates is large and growing”.129 The ACTU also contended that there are many factors other than the level of minimum wages that affect the incentive to bargain, such as the “legislative framework, structural factors such as sector and the size of the workplace as well as the level of bargaining power”.130 The Victorian Government also noted in its submission that a measured approach to minimum wages may not discourage bargaining.

[219] The ACTU cited research 131 which suggests that award-reliant workers face barriers to bargaining. Similarly, ACCER submitted that award-reliant workers “do not have the ability to bargain for higher rates of pay”.132

Conclusion

[220] ABS data from the EEH series shown in Chart 6.1 of the 2010–11 Review decision 133 showed the proportion of employees on collective agreements rose between 2000 and 2010, with the largest increase occurring between 2008 and 2010, with the proportion of employees on awards decreasing steadily over the period, from 23.2 per cent in 2000 to 15.2 per cent in 2010. No later data is available—the next release of the EEH series, to be conducted in May 2012, is tentatively scheduled for release in January 2013.

[221] The EEH data also shows a significant gap between average wages covered by agreements and for award-reliant employees. In May 2010, average weekly total cash earnings for employees covered by a collective agreement were $1352.10, compared with $810.70 for award-reliant employees. 134

[222] The conclusions of the Panel in the 2009–10 Review decision, 135 and repeated in the 2010–11 Review decision,136 as to the relationship between increases in minimum wages and enterprise bargaining remains valid:

• whilst the gap between award minimum wages and bargained wages is likely to increase the incentive for employees to bargain, a large gap may be a disincentive for employers to bargain,



• minimum wages are only one element of the incentive to bargain, and



• there is no evidence that the incentive to bargain has been adversely affected by the increases in minimum wages which have occurred over the last decade, with ABS data showing a very significant reduction in award reliance across all industries, including those which are traditionally regarded as award reliant.

[223] There is no new evidence which would cause us to depart from these conclusions. Research currently being undertaken for Fair Work Australia by the Workplace Research Centre, University of Sydney 137 should provide further information to assess the relationship between minimum wages and bargaining for the consideration of interested parties and the Panel.

[224] The current evidence indicates that the level of increases in minimum award wages which have occurred over the last decade are compatible with the continuing encouragement of enterprise bargaining.

8. The Principle of Equal Remuneration for Work of Equal or Comparable Value

[225] We are required by the minimum wages and modern awards objectives to take into account the principle of equal remuneration for work of equal or comparable value. 138

[226] The parties differed on how the principle of equal remuneration should be considered and on the effect of minimum wage adjustments on gender pay equity.

[227] The ACTU submitted that the principle of equal remuneration requires a consideration of pay equity in setting and adjusting minimum wages and argued that minimum wage adjustments “have the potential” to decrease the gender pay gap. 139 The ACTU drew attention to the findings of Fair Work Australia’s Research Report 3/2012 (Award reliance and differences in earnings by gender), which investigated the gender composition of the award-reliant sector and the potential impact of an increase in award wages on the gap between female and male wages, and submitted:

“the analysis is consistent with previous research showing that minimum wage adjustments assist in reducing the gender pay gap in the bottom half of the wage distribution and that higher wage increases are more effective in promoting pay equity.” 140

[228] The Australian Government and Ai Group submitted that though the principle of equal remuneration should be considered by the Panel, mechanisms in the Act, other than minimum wage setting such as equal remuneration orders and collective bargaining, were better suited to addressing pay equity issues. Both parties referred to the Equal Remuneration Case. 141 The South Australian Government however argued that this case reinforced the need to further maintain the real value of minimum wages:

“The South Australian Government submits that the consideration of the pay equity issues in the SACS sector reinforces the need to further maintain minimum wages and their real value into the future. Otherwise, the benefits of decisions, such as the 2012 equal remuneration decision may be eroded over time.” 142

[229] ACCI and ABI argued that the principle of equal remuneration did not necessitate a wage increase and should be considered as part of a number of objectives. 143 ABI, with reference to Research Report 3/2012, concluded that award minimum wage rate increases in general may not greatly assist the improvement of pay equity:

“a percentage increase to award minimum wages may slightly better promote pay equity than an equivalent (“wage bill neutral”) monetary increase, at least with respect to award reliant employees. Increases to award minimum rates in general may do little, and may exacerbate, the differences between award-reliant and non award-reliant earnings.” 144

Conclusion

[230] In the 2010–11 Review decision, the Panel concluded that:

“the principle of equal remuneration is a factor in favour of an increase and we agree with those who submitted that an increase in minimum wages is likely to assist in some measure in promoting pay equity, although in our view other means are available under the Fair Work Act to address such issues more directly.” 145

[231] Given women are disproportionately represented amongst the low paid, 146 an increase in minimum wages is likely to promote pay equity, although moderate changes in award rates of pay would be expected to have only a small effect on the overall differences in earnings between males and females.147

9. Exceptional/Special Circumstances Claims

[232] In the 2009–10 and 2010–11 Review decisions, a uniform increase was applied to modern award minimum wages and the national minimum wage contained in the national minimum wage order. 148 On each occasion the Panel made determinations varying minimum wages in modern awards to give effect to the uniform increase.149

[233] In these review proceedings ACCI submitted that the Panel should adopt a different process to that taken in previous cases and conduct a modern award by modern award review of minimum wages. It also submitted that the Panel should provide reasons to justify any increases determined in respect of each modern award. 150 The modern award by modern award approach advocated by ACCI was supported by a number of other parties.151

[234] ACCI advanced two general propositions in relation to the provision of differential treatment. First, it was submitted that employers in receipt of natural disaster assistance or who operate in a relevant declared geographical area should receive a deferral of up to 12 months of any increase granted. Such a deferral was said to be justified on the basis of “exceptional circumstances” within the meaning of s.286(2) of the Act.

[235] The second proposition advanced by ACCI was that there should be an exemption from any variation increase in modern awards in designated services industry sectors which are in significant difficulty and will be most affected by an increase to minimum wages including: trade exposed industry sectors, manufacturing, tourism, general retail, food, accommodation, hospitality, residential building and construction. 152

[236] ACCI foreshadowed that individual ACCI members would provide “specific detail on which industry/occupational modern awards would be subject to an exemption” 153 and subsequently a number of employer associations made submissions directed at providing an exemption from any wage increase in respect of particular modern awards in the retail and hospitality sectors. We deal with those submissions later.

[237] ACCI advanced a secondary position in the event that the exemptions sought were not granted, namely the establishment of a “brief supplementary determination process”. The proposed process is described in ACCI’s reply submission in these terms:

“This supplementary process will provide an opportunity for employers, employees, unions and employer representatives, to provide submissions on why part or all of an increase should be granted for those specific modern awards in those industry sectors facing difficulties. In order to facilitate such a supplementary process in an orderly manner, an interim decision should be provided by the Panel on whether an exemption will be granted, to allow employers to provide submissions on why part or all of an increase should not flow-onto particular industry/occupational modern awards.” 154

[238] Before turning to the merits of the submissions directed at the deferral of, or exemption from, any general adjustment awarded in this Review we make some general observations about these matters and briefly canvass some of the relevant legislative provisions.

[239] The Act provides that the Panel must “maintain a safety net of fair minimum wages” 155 and to this end s.285(1) provides that an annual wage review must be “conducted and completed” in each financial year. Further, a determination made in an annual wage review which varies minimum wages in one or more modern awards must come into operation on 1 July in the next financial year, unless there are exceptional circumstances justifying why a variation should come into operation on a later date.156 A national minimum wage order that is made in a review also comes into operation on 1 July of the next financial year, unless there are exceptional circumstances justifying why a variation should come into operation on a later date.157 In each case, however, the later date of operation must be confined to the particular situation to which the exceptional circumstances relate.158

[240] A consequence of these provisions is that we must complete this Review by 30 June 2012 and any minimum wage variation and national minimum wage order determined by the Review is to come into operation on 1 July 2012, absent exceptional circumstances. Further, s.292(1)(a) provides that Fair Work Australia must publish the wage rates varied as a result of a review determination before 1 July in the next financial year. Hence, as a practical matter, it is necessary that a review decision be handed down in early June, in order to ensure that the new wages rates are published and to provide parties with an opportunity to comment on any draft variations to the minimum wage rates in modern awards. Such a timeframe also provides employers with an opportunity to implement the result of any determination we make, in a timely manner. In that context we note Ai Group’s concerns that even when a review decision is handed down in early June it still makes the timely implementation of the Panel’s decision difficult.

[241] Section 157(2) is also relevant. It provides that outside the context of an annual wage review or the 4 yearly review of modern awards, modern award minimum wages can only be varied if Fair Work Australia is satisfied that such a variation is justified on work value grounds.

[242] These provisions have implications for: the proposed modern award by modern award approach; the claims before us that seek the deferral of any minimum wage adjustment; and those claims that seek a different result to that pertaining to other modern awards (i.e. those claims that seek no adjustment in minimum wages in particular modern awards). The statutory framework also has implications for the supplementary determination process advanced by ACCI in the event that no exemptions were granted.

[243] It is convenient to deal first with the proposed modern award by modern award approach and then make some general observations about the claims seeking differential treatment.

[244] As to the modern award by modern award approach, we note that no award specific submissions have been made in relation to the vast majority of the 122 modern awards. This issue was raised with ACCI during the consultations on 14 May 2012. ACCI clarified its position and accepted the proposition that the Panel need only adopt a modern award by modern award approach in those instances where submissions have been made advocating a different outcome in respect of a particular modern award. The Panel was not being asked to conduct an individual inquiry in respect of each modern award. 159 We accept that this is so and have proceeded on that basis. We deal with the specific submissions raised in respect of particular modern awards later.

[245] As to the deferral claims, we accept that we may make a variation determination in respect of one or more modern awards that comes into operation on a day later than 1 July 2012, provided we are satisfied that there are exceptional circumstances justifying such a course. We also accept that a deferral claim may be granted in respect of a particular region(s) covered by a modern award, again provided that there are exceptional circumstances justifying such a result.

[246] However, we doubt that the Panel has power to defer the operation of a variation determination by reference to state or territory boundaries (as opposed to a particular region), because of the prohibition in respect of interstate wage differentials in s.154 of the Act. But it is not necessary for us to reach a concluded view in respect of this matter as none of the claims before us seeks a state-wide deferral of a variation determination.

[247] As to those claims that sought differential treatment in terms of the quantum of any variation (as opposed to a different date of operation) we accept ACCI’s contention that the Act does not compel the variation of modern award minimum wages in all modern awards. Section 285(2)(b) provides that in an annual wage review the Panel:

“may make one or more determinations varying modern awards to set, vary or revoke modern award minimum wages” (emphasis added).

[248] Further, s.284(4) defines varying modern award minimum wages as “varying the current rate of one or more modern award minimum wages”.

[249] It follows that the Panel has a discretion to vary some or all modern award minimum wages in the context of an annual wage review. The question then becomes the basis upon which the Panel should exercise that discretion.

[250] The threshold to be met in order to warrant an exemption from a general determination in an annual wage review was not given much attention in the submissions. During the consultations on 14 May 2012, ACCI submitted that a party seeking such an exemption need not demonstrate exceptional circumstances, rather it was submitted that it would be sufficient to warrant an exemption if a party provided an evidentiary basis for exercise of the Panel’s discretion. 160

[251] Historically, the predecessors of Fair Work Australia only granted applications for such differential treatment on the basis of “very serious or extreme economic adversity” and the material in support of such applications was “rigorously tested”. Such matters were commonly set out in an Economic Incapacity principle.

[252] In the context of the return to a centralised wage system in 1983, the then Australian Conciliation and Arbitration Commission said:

“While we would not debar argument being advanced on economic incapacity we would emphasize not only the long established principle of wage fixation that those seeking to argue incapacity to pay must present a strong case, but also that the fundamental basis of a centralized system is uniformity and consistency of treatment.” 161

[253] The Commission formally adopted an Economic Incapacity principle in the June 1986 National Wage Case decision. 162 That principle remained part of the wage fixation system, largely unchanged, until the fixation of minimum wages was transferred to the AFPC upon the commencement of Schedule 1A of the Workplace Relations Amendment (Work Choices) Act 2005.

[254] On a number of occasions the then Commission had cause to consider the Economic Incapacity principle and the following observations may be made on the basis of those cases:

• The onus is on the party seeking to rely on economic incapacity and a strong case must be made out in order to warrant relief. 163



• An incapacity claim needs to be supported by oral and/or documentary evidence capable of analysis and evaluation. 164



• Incapacity claims will only rarely be successful in respect of a whole industry. In a number of cases the diversity of experience in the sectors covered by an award have made it inappropriate to exempt all sectors from an increase. 165

[255] In our view, these general observations are broadly relevant to our consideration of the exemption claims currently before us, for three reasons.

[256] First, the Act was legislated against the background of a long standing approach to claims based on economic incapacity. Parliament may be presumed to have known of the historical approach taken to such claims. 166

[257] Secondly, the legislative framework reveals a preference for consistent variation determinations across all modern awards. The minimum wages objective requires us to establish and maintain a safety net of fair minimum wages. The modern awards objective requires us to ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions. The modern awards objective also speaks of the need to ensure a “stable and sustainable modern award system”.

[258] The notion of a fair safety net of minimum wages embodies the concepts of uniformity and consistency of treatment. These concepts underpin the fixation of minimum wages in modern awards and date back to the establishment of consistent minimum rates within and across awards endorsed in the National Wage Case February 1989 Review 167 and implemented in the August 1988 National Wage Case decision.168 The principle of consistent minimum rates across awards was maintained through the award simplification process;169 the Paid Rates Review;170 and award modernisation.171 If differential treatment was afforded to particular industries this would distort award relativities and lead to disparate wage outcomes for award-reliant employees with similar or comparable levels of skill. In that context, it is important to note that in establishing and maintaining the minimum wages safety net, the Panel must take into account the principle of equal remuneration for work of equal or comparable value.

[259] The maintenance of consistent minimum wages in modern awards and the need to ensure a stable and sustainable modern award system would be undermined if the Panel too readily acceded to requests for differential treatment.

[260] It is also important to appreciate that in an annual wage review, the Act directs the Panel’s attention to a range of macroeconomic and general factors including: the performance and competitiveness of the national economy; inflation; employment growth; relative living standards; the promotion of social inclusion; and the needs of the low paid. The nature of these factors directs the Panel’s attention to matters which are relevant to the variation of all modern awards.

[261] The final point in support of the adoption of the propositions set out at paragraph [254] above, is the legislative preference for consistent operative dates for variation determinations made in an annual wage review. As noted previously, ss.286 and 287 provide that all such determinations must come into operation on 1 July in the next financial year. A party seeking a later operative date must satisfy the Panel that there are exceptional circumstances which justify a later date. It would be an odd outcome if a lower threshold applied in relation to claims for a different quantum to the threshold which applies to claims for a later operative date.

[262] Against the background of these general observations we now turn to deal with the particular claims seeking differential treatment.

A deferred operative date for natural disaster affected employers

[263] As we have noted, ACCI sought a 12 month deferral of any variation determination arising from this Review for those employers adversely affected by “severe and unprecedented weather events”. 172 In this context specific mention was made of floods in New South Wales. It was proposed that eligibility for the deferral could be based on receipt of federal or state grants or provided on the basis that an employer operated within a declared natural disaster local government area.173 This submission was supported by Chamber of Commerce and Industry of Western Australia174 and Business SA put a similar submission.175 AFEI advanced a general submission seeking a deferral for an unspecified period, for the same reasons.

[264] Similar submissions were put to the 2010–11 Review in relation to widespread flooding and the effects of Cyclone Yasi. In the 2010–11 Review decision the Panel rejected the claims for a delay in the operative date of the increases arising from the review decision. The reasons for the Panel’s decision included: the lack of any obvious mechanism to properly identify the employers affected and to whom the deferral should apply; the fact that a deferral would place some of the burden of adjustment on the lowest paid in the community, who might themselves be in difficult financial circumstances because of the effects of natural disasters upon themselves and their families; the absence of information on how the losses have been distributed across the different classes of employees and enterprises; and the fact that governments were already providing assistance through various programs. 176

[265] In the present case, we are not persuaded that those supporting a deferral have established that there are exceptional circumstances which justify an operative date later than that prescribed in s.286(1) of the Act. The reasons given for rejecting similar claims in the 2010–11 Review remain apposite.

[266] We are conscious of the hardship inflicted on many businesses, especially small businesses, by recent natural disasters. However, the declaration of natural disasters by government cannot, of itself, be regarded as constituting “exceptional circumstances” for the purpose of s.286. Information about the effect of the disaster event on different classes of employers and enterprises and the assistance provided by government are necessary elements in any case seeking to establish exceptional circumstances.

[267] Further, any assessment of the effect of a natural disaster must necessarily include an assessment of the impact upon employees who would bear the cost of a deferral of a minimum wage increase. For example, in circumstances where the impact of flooding on an employer was limited to the cessation of trading for the duration of the flooding, that employer’s employees might be stood down consistent with s.524(1)(c) of the Act or, if casual employees, not offered work. In both cases the employees concerned would sustain a loss of their normal income for the duration of flooding. The employer would suffer the loss of profits which would have been earned and would also need to meet fixed costs over the duration of the cessation of trading. The direct cost to both employers and employees would be relevant considerations in assessing whether a deferral of minimum wage increases should occur.

[2068 Further, as was the case in the 2010–11 Review, no obvious mechanism was advanced which could properly identify the employers affected and to whom the deferral should apply.

Industry specific exemptions

[269] As we have already noted, a number of employer associations sought an exemption from any variation determination arising from this Review being applied to certain modern awards in what were described as the services industry sectors of the economy, with particular reference to those covering the retail and hospitality sectors.

[270] It is convenient to deal first with the National Retail Association submission that the General Retail Industry Award 2010 177 and the Fast Food Industry Award 2010178 be excluded from any variation determination because of the impact of the award modernisation process on employers in those industries. In the 2009–10 and 2010–11 Review decisions the Panel rejected similar claims for special treatment based on the alleged costs of award modernisation179. Nothing has been put in these proceedings which has caused us to review those conclusions, either in relation to the costs of award modernisation or in relation to the desirability of giving special treatment to a particular industry, or part of an industry, because of award modernisation. As the Panel observed in the 2009–10 Review decision:

“It would not be appropriate to delay the operation of our decision in this review on account of award modernisation. It is apparent that increased costs resulting from award modernisation have already been taken into account by the AIRC in deciding upon the transitional provisions and operative dates in modern awards.” 180

[271] The Australian Retailers Association, Restaurant and Catering Australia and the National Retail Association advanced a range of other arguments in support of an exemption for modern awards in the retail sector, including: poor trading conditions; conservative consumer spending patterns; and various cost pressures. The Australian Hotels Association (AHA) and Restaurant and Catering Australia contended that awards in the hospitality sector should be exempt from any increase in minimum wages. Such an exemption was said to be justified on the basis of, among other things, falling domestic tourism and consumer demand, structural changes in the Australian economy and business insolvencies/survival rates. The submissions put also relied on surveys of the members of the relevant associations.

[272] We are not persuaded that these submissions warrant the grant of a general exemption to the modern awards which operate in the retail and hospitality sectors. The diversity of experience within these sectors tells strongly against the grant of a general exemption.

[273] An examination of the economic circumstances of these industries does not support a conclusion that, as a whole, they are suffering economic circumstances which would warrant an exemption from wage increases arising from our decision. Over the year to March 2012, growth in different sectors ranged from 7.6 per cent for cafes, restaurants and takeaways, with varying lower levels of growth in other sectors, the smallest growth being 0.4 per cent in clothing, footwear and personal accessory retailing. 181 Similarly, the member surveys put in support of the claimed exemption indicated a diversity of employment intentions, rather than a general position applying across the industry.

[274] In relation to the hospitality industry, the diversity of experience is apparent in the AHA’s submission. The AHA estimates that 25 to 35 per cent of employees in the hospitality sector are employed in enterprises that are not experiencing financial adversity, albeit that yield may be lower than in the better years of trade.

[275] Further, whilst some economic indicators for the hospitality and retail sectors have been weak recently, other indicators reflect better outcomes. Whilst aggregate employment and hours of work in the Retail trade industry fell over the year to February 2012, by 2.8 per cent and 1.4 per cent respectively 182, retail sales grew in aggregate by 3.7 per cent over the year to March 2012183 and gross operating profits in the sector have increased by over 7 per cent in the year to December 2011.184 Aggregate employment and hours of work in the Accommodation and food services industry fell over the year to February 2012 by 7.4 per cent and 7.8 per cent respectively,185 but gross operating profits in the sector have increased by 12.8 per cent in the year to December 2011.186

[276] The retail associations also relied on changes in consumer behaviour in the form of increased savings and changing patterns of consumer demand. Whilst consumer confidence, as measured by the Westpac Consumer Sentiment Index, is weak and the household savings ratio (saving as a proportion of household disposable income) has risen from the historically low levels of the late 1990s and early 2000s, consumption has continued to grow at around its typical pace in the past few years. In the year to the December 2011 quarter, household net disposable income grew by 6 per cent, while consumption expenditure rose by 6.3 per cent. 187

[277] In relation to the concerns expressed about the household savings ratio, the recent observations by the Governor of the Reserve Bank are relevant:

“[T]he current number—which is 10 per cent or more—to the extent that there is a norm from history, it is much more likely to be near that than zero, which is where it got to five years ago… [W]e had that long period of household behaviour in which the rate of saving from current income went down progressively to nothing, basically, as measured by the ABS. Asset prices were rising, leverage in the household sector was rising and confidence was high, and that is not going to continue indefinitely... I do not think that the so-called ‘caution’ has got to the point where the saving rate is continually going up and up and up. I do not really think that is happening…

Spending is growing and it is growing in line with income, but people are spending their money differently than the way they were in the past.”  188

[278] The general matters relied upon by those supporting an exemption, such as structural changes in the Australian economy, changed patterns of consumer behaviour, utility and rental costs and corporate insolvencies, relate to the economy as a whole and do not support differential treatment for the modern awards that have been raised with the Panel. We have however taken these matters into account in our consideration of the economy in Chapter 4 of this decision.

[279] Having rejected the exemption claims, we now turn to ACCI’s secondary position, that the Panel establish a “brief supplementary determination process”.

[280] We are not persuaded to adopt the course proposed.

[281] The parties seeking an exemption have had an opportunity to make submissions in support of their position, both in writing and orally at the consultations. We are not persuaded that any further opportunity is either necessary or practical.

[282] As we have noted, the Act requires that this Review be completed by 30 June 2012 and, absent exceptional circumstances, any modern award minimum wage variation determined by the review must come into operation on 1 July 2012. A practical consequence of these legislative restrictions is that the Panel is obliged to hand down its decision in early June to provide a sufficient period for parties to comment on draft variation determinations to give effect to our decision. These temporal limitations also tell against the process proposed by ACCI.

[283] The current legislative restrictions effectively mean that employers wishing to seek relief from a variation determination are obliged to run their case before the outcome of the Review is known. This creates obvious practical difficulties. It also means that employers who face significant financial adversity as a result of circumstances which arise after the Review decision is completed have no means of seeking relief on the basis of economic incapacity. This is because s.157(2) limits Fair Work Australia’s jurisdiction to vary modern award minimum wages outside the context of an annual wage review or the 4 yearly review of modern awards.

[284] The current legislative framework ensures that annual wage reviews are conducted in a timely way and provide certainty for businesses and employees, by specifying the operative date of any wage increases flowing from such reviews. However, the interaction of ss.157(2), 285(1) and 286 gives rise to what may have been an unintended consequence. The practical effect of these provisions is to inhibit the Panel’s capacity to establish an incapacity to pay process that can be accessed after an annual wage review has been completed.

[285] The current review of the Act provides an opportunity to address these issues. In the event that the Act is amended so as to allow for the adoption of an economic incapacity process we would invite submissions as to whether such a process should be implemented and, if it was, the test which should be adopted.

10. Other Matters

Transitional Australian Pay and Classification Scales, Division 2B State awards and other transitional instruments

[286] The Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Transitional Act) requires that the Panel review a number of transitional instruments as part of its annual wage review. Following a review of these transitional instruments, the Panel is empowered to make a determination varying any of those instruments. 189 The instruments are:

• transitional Australian Pay and Classification Scales (APCSs);



• State reference transitional awards, which include:

• Division 2A State reference transitional awards,



• Division 2A State reference transitional enterprise awards,



• Division 2A State reference public sector transitional awards,



• Division 2B State reference transitional awards,



• Division 2B State reference transitional enterprise awards, and



• Division 2B State reference public sector transitional awards,

• Division 2B State awards, which include the following instruments:

• Division 2B State awards, and



• Division 2B State enterprise awards.

[287] The content and coverage of these instruments were addressed in the Panel’s 2009–10 Review decision 190 as well as Fair Work Australia’s Research Report 6/2010 Minimum wage transitional instruments under the Fair Work Act 2009 and the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009.191

[288] In the 2010–11 Review decision, the Panel decided to adjust all transitional instruments in line with the percentage increase afforded to modern awards, 192 with an exception that any remaining Division 2B State awards (which had not automatically terminated on 31 December 2010) be adjusted to create parity with their equivalent transitional APCS instruments.193

[289] Since the Panel’s 2009–10 and 2010–11 Review decisions, by virtue of their “transitional” nature under the Transitional Act, a number of instruments considered by the Panel in its first decision have been either terminated as part of the termination of modernisable instruments process, 194 or have (or will shortly) sunset by operation of the Transitional Act.195 Some modernisable instruments are still under consideration as part of this process, or continue to be preserved and operate whilst parties and the Full Bench finalise the orders arising from the Equal Remuneration Case.196

[290] There are, however, two categories of instruments which continue to operate. The first category is modernisable instruments which are derived from enterprise or public sector awards where there had been a referral of power. These instruments are subject to a separate process of modernisation and, as such, they continue to operate and may be adjusted by the Panel. These instruments are:

• Division 2A State reference transitional enterprise awards,



• Division 2A State reference public sector transitional awards,



• Division 2B State reference transitional enterprise awards,



• Division 2B State reference public sector transitional awards, and



• Division 2A and 2B State reference awards not terminated by Fair Work Australia as they cover employees who are also covered by enterprise instruments or State reference public sector transitional awards.

[291] These instruments will terminate (whether modernised or not) on 31 December 2013, or earlier if Fair Work Australia terminates them after making a modern enterprise or public sector award. 197

[292] The second category is instruments preserved by operation of the Fair Work (Transitional Provisions and Consequential Amendments) Regulations 2009. These instruments (some transitional APCSs, State reference transitional instruments and Division 2B State awards) will continue to operate regardless of Fair Work Australia’s termination of modernisable instruments or any modernisation of modernisable instruments outlined above. These instruments are instruments which provide/cover competency-based wage arrangements for trainees or apprentices, or that contain provisions “exclusively” relating to the tools for trainees or apprentices (this principally applies to Queensland apprentices and trainees). 198

[293] Few parties addressed the adjustment of transitional instruments. The ACTU and ABI submitted that transitional instruments still remaining in the Fair Work system should be varied with the same adjustments afforded to modern awards. 199 Specific submissions from the ACTU and Group Training Australia were made with relation to Queensland trainees and apprentices, with submissions from the ACTU and Group Training Australia arguing that the Division 2B State awards covering these employees should be increased in line with modern awards. Submissions relating to employees subject to specific Queensland labour market programs referred to the fact that the instruments will terminate on 30 June 2012.200

[294] We have decided to adjust transitional instruments which remain in operation in line with the increase in modern award minimum wages. There is no requirement to publish the variations. 201

Modern award minimum wages for junior employees, employees to whom training arrangements apply, employees with disability and piece rates

[295] In conducting a review, the Panel is required to review minimum wages for junior employees, employees to whom training arrangements apply and employees with disability, and piece rates. 202

[296] In relation to modern award rates for junior employees, the ACTU, ACCI and Ai Group submitted that any minimum wage increases awarded as part of this Review should flow on to junior wages in modern awards. 203 Despite this position, the ACTU however noted that it “remains committed to progressively eliminating discounted wage rates for employees aged 18 and over”.204

[297] We will continue to allow the increase we have decided on to flow through to junior rates through the operation of provisions for calculating junior rates in awards.

[298] The ACTU, ACCI and Ai Group supported the flow on of any minimum wage increases awarded as part of this Review to employees to whom training arrangements apply in modern awards. 205 Despite supporting a flow on, ACCI argued that changes in wages for employees to whom training arrangements apply may affect their future employment:

“Employment to which training arrangements apply is particularly vulnerable and cost sensitive. Employers in some areas already struggle to maintain traineeships and apprenticeships, and will in particular struggle to take on new inductions in the face of making redundancies elsewhere. Any change in the price of training based employment threatens to tip more of these calculations in favour of not taking on or retaining employment and training places.” 206

[299] ACOSS submitted that the adjustment of apprentice and trainee wages should be differentiated in accordance with differing labour force conditions:

“There is a case, however, to target lower training wages to adults who are disadvantaged job seekers on income support, when they participate in structured training programs. In this way, sub-minimum wages for adults can be targeted towards those jobless people who are least likely to have the opportunity to participate in structured training if they were paid normal wages.” 207

[300] In relation to the adjustment of the National Training Wage Schedule (NTWS) for trainees which is attached to most modern awards, the ACTU expressed support for a continuation of the Panel’s approach of last year and submitted:

“Applying a percentage increase to the rates in the NTWS is both simple and fair. It prevents further compression of relativities within the NTWS and provides modest wage increases for award-reliant employees who are clearly low-paid. The 2011 adjustment to the NTWS did not cause any unforeseen difficulties.” 208

[301] We have decided to apply the percentage increase determined by us to all of the rates in the NTWS. We have also decided to apply that percentage to all other wages for junior employees and employees to whom training arrangements apply in modern awards.

[302] For employees with disability, the ACTU, ACCI and Ai Group supported the flow-on of any wage increase to wage rates in modern awards through the Supported Wage System Schedule (SWSS), which is attached to most modern awards. 209 The ACTU and Ai Group also supported the continued adjustment of the minimum payment in the SWSS to maintain its weekly equivalent of the per fortnight income test free threshold for the Disability Support Pension.210 ACOSS submitted it had general concerns with the present system of wages for employees with disability.

[303] We have decided that the adjustment will flow through to employees with disability through the operation of the SWSS and that the minimum payment in the SWSS should be adjusted in accordance with past practice.

[304] Few submissions directly addressed the variation of piece rates, though the ACTU and Ai Group specifically supported a flow on of any minimum wage increases awarded as part of this Review to piece rates. 211

[305] Employees engaged on piece work will receive the benefit of the increase we have decided on.

Casual loadings under modern awards and the casual loading for award/agreement free employees

[306] In each annual wage review the Panel is required to review casual loadings in modern awards and to include a casual loading for award/agreement free employees in the national minimum wage order. The casual loading for award/agreement free employees must be expressed as a percentage. 212

[307] The ACTU and Ai Group supported increasing the casual loading for award/agreement free employees to 23 per cent 213 and that the casual loading in modern awards should be maintained at 25 per cent.214 No parties opposed increases to casual loadings, however some submissions outlined the costs to employers associated with casual loadings and submitted that the Panel take this into account.215

[308] The casual loading under modern awards will be maintained at 25 per cent and the casual loading for award/agreement free employees will be increased to 23 per cent.

Special national minimum wages

[309] Section 294 of the Act requires the Panel to include in the national minimum wage order special national minimum wages for award/agreement free junior employees, employees to whom training arrangements apply and employees with disability.

[310] In relation to junior award/agreement free employees, the Panel in its 2010–11 Review decision decided to adopt the junior wage percentage scale in the Miscellaneous Award 2010 216 as the special national minimum wage for award/agreement free junior employees. The ACTU and Ai Group agreed with that approach and submitted that the Panel should continue using the junior wage scale in the Miscellaneous Award 2010 as the special national minimum wage for award/agreement free juniors.217

[311] We have decided to take the same approach as the Panel did in its 2010–11 Review decision and use the scale in the Miscellaneous Award 2010 to set the special national minimum wage for award/agreement free junior employees.

[312] For award/agreement free employees to whom training arrangements apply, the ACTU and Ai Group submitted that the Panel should adopt the same approach as last year and rely on the apprentice provisions in the Miscellaneous Award 2010 (whereby adult apprentices should not receive less than the national minimum wage). 218 For employees to whom training arrangements apply (other than apprentices), the ACTU and Ai Group submitted that the National Training Wage Schedule should apply as in the National Minimum Wage Order 2011.219

[313] Consistent with the 2010–11 Review decision 220 the provisions of the Miscellaneous Award 2010, as adjusted, will continue to apply as the basis for the special national minimum wages for award/agreement free employees to whom training arrangements apply. The apprentice provisions in that award and the provisions in the National Training Wage Schedule will be incorporated by reference into the national minimum wage order. The order will also provide that adult apprentices should not receive less than the national minimum wage.

[314] In relation to award/agreement free employees with disability, the ACTU and Ai Group agreed with the Panel’s prior approach of separating national minimum wages for employees with disability whose productivity is not affected and whose productivity is affected.

[315] As with modern award wages for employees with disability, the ACTU and Ai Group submitted that the Panel should adjust the SWSS minimum payment in the special national minimum wage for employees with disability whose productivity is affected by their disability as with past practice. 221

[316] The minimum wage for employees with disability whose productivity is affected will be paid in accordance with an assessment under the supported wage system subject to the minimum payment fixed under the SWSS.

11. Summary

[317] It is appropriate to summarise the outcome of the Review and mention some matters relevant to the future.

[318] The outcome of the Review in relation to modern award minimum wages is that from the first full pay period on or after 1 July 2012 minimum weekly wages are increased by 2.9 per cent, with commensurate increases in hourly rates on the basis of a 38 hour week. The increase applies to minimum wages for junior employees, employees to whom training arrangements apply and employees with disability, and to piece rates through the operation of the methods applying to the calculation of those wages. Wages in the NTWS will be adjusted by 2.9 per cent.

[319] The determinations necessary to give effect to the increase in modern awards will be made available in draft form shortly after this decision. Determinations varying the modern awards will be made as soon as practicable and the modern awards including the varied wage rates will be published as required by the Act.

[320] In relation to transitional instruments, from the first full pay period on or after 1 July 2012 wages in those instruments, including Division 2B State enterprise awards, will be varied by 2.9 per cent per week, with commensurate increases in hourly rates based on a 38 hour week. Wages in Division 2B State awards relating to Queensland trainees, apprentices and employees subject to specific Queensland labour market programs will be varied to achieve parity with minimum wages in the corresponding transitional APCSs and State reference transitional awards.

[321] The national minimum wage order will contain:

(a) a national minimum wage of $606.40 per week or $15.96 per hour,

(b) two special national minimum wages for award/agreement free employees with disability: for employees with disability whose productivity is not affected, a minimum wage of $606.40 per week or $15.96 per hour based on a 38 hour week, and for employees whose productivity is affected, an assessment under the supported wage system, subject to a minimum payment fixed under the SWSS,

(c) wages provisions for award/agreement free junior employees based on the percentages for juniors in the Miscellaneous Award 2010 applied to the national minimum wage,

(d) the apprentice wage provisions and the NTWS in the Miscellaneous Award 2010 for award/agreement free employees to whom training arrangements apply, incorporated by reference and a provision that adult apprentices should not receive less than the national minimum wage, and

(e) a casual loading of 23 per cent for award/agreement free employees.

[322] We intend to give consideration to the research program for the Annual Wage Review 2012–13 as soon as practicable. We invite interested parties to lodge research proposals by 31 July 2012. Sometime after 31 July the President will convene a public conference with the Panel to discuss the proposals. The research program will not necessarily be restricted to the parties’ proposals.

[323] The timetable for the Annual Wage Review 2012–13 will be announced in the last quarter of 2012.

[324] We wish to express our appreciation to the parties who participated in the Review for their contributions and to the staff of Fair Work Australia for their assistance.

PRESIDENT

Appendix 1—Proposed Minimum Wages Adjustments

Submission	Proposal
	National minimum wage	Modern award minimum wages	Exemption/deferral sought
Australian Government	No quantum specified
South Australian Government	No quantum specified
New South Wales Government	No quantum specified
Victorian Government	No quantum specified
Western Australian Government	Per cent increase equivalent to the change in CPI published in the 2012–13 Budget, applicable to all
ACTU	$26.00 pw	For C10 and below: $26.00 pw For above C10: 3.8% pw
Ai Group	$14.00 pw, applicable to all
ACCI	$9.40 pw, considered on an award-by-award basis		Deferral for natural disaster affected employers of 12 months Exemption for services industry sectors facing significant difficulties
ACOSS	No quantum specified
Accommodation Association of Australia	Not more than 2.25%, applicable to all
ABI	1.8% pw, applicable to all
AFEI	Not more than $9.40 pw, considered on an award or industry basis		Deferral for natural disaster affected employers
AHA	$9.40 pw, considered on an award-by-award basis		Deferral for natural disaster affected employers of 12 months Exemption for services industry sectors facing significant difficulties
ANRA	$8.00 pw, applicable to all
Australian Retailers Association	No increase		Exemption for particular modern awards in services industry sectors
Australian Road Transport Industrial Organisation	No quantum specified
Business SA	$9.45 pw, applicable to all		A deferral of up to 12 months for employers in receipt of government recovery subsidy
Chamber of Commerce and Industry of Western Australia	Not more than $9.40 pw, applicable to all
Chamber of Commerce and Industry Queensland	Substantially less than $9.00 pw, applicable to all. Preferably no increase until businesses are better placed to afford it and remain viable.
Housing Industry Association	No quantum specified
Master Grocers of Australia	No increase
Motor Trade Association of South Australia Inc	$9.50 pw, applicable to all
National Farmers’ Federation	$10.00 pw, applicable to all
National Retail Association	No quantum specified		Excluding the General Retail Industry Award and the Fast Food Industry Award from any increase
R&CA	No quantum specified		No increase to modern awards in the service sector
South Australia Wine Industry Association Inc	No quantum specified
Victorian Automobile Chamber of Commerce	$9.40 pw, applicable to all
ACCER	$27.80 pw, equivalent to the C10 increase plus $10.00 pw	For C10 and higher: 2.6 per cent increase, equivalent to the change in the CPI for the year to the March qtr 2012 plus 1% for productivity increases. For below C10: $17.80, which is the equivalent of the C10 increase as a dollar amount
“Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU), The Australian Workers’ Union, Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, The Association of Professional Engineers, Scientists and Managers, Australia, Australia, National Tertiary Education Industry Union	No quantum specified
Australian Social Inclusion Board	No quantum specified
Group Training Australia	No quantum specified
Mr P Drew	No quantum specified

 1   [2011] FWAFB 3400.

 2   ibid. at para. 307.

 3   MA000010.

 4   ACCI submission, p. 11 at paras 47–50; Chamber of Commerce and Industry Western Australia submission at p. 1; Business SA submission, p. 3 at para. 2.4; and AFEI submission, p. 4–5 at para. 9.

 5   These include the submissions of ACCI, AHA, the Australian Retailers Association, the National Retail Association and Restaurant & Catering Australia.

 6   For example, promoting productivity and economic growth (s.3(a)); promoting flexible modern work practices and the efficient and productive performance of work (s.134(1)(d)); the likely impact of any determination on business including on productivity, employment costs and the regulatory burden (s.134(1)(f)); the likely impact of any determination on employment growth, inflation and the sustainability, performance, and competitiveness of the national economy (s.134(1)(h)); the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth (s.284(1)(a)); and acknowledging the special circumstances of small and medium-sized businesses (s.3(g)).

 7   For example; the establishment and maintenance of a safety net of fair, relevant and enforceable minimum wages within the context of an easy to understand, stable and sustainable modern award system (ss.3(b), 134(1), 134(1)(g) and 284(1)); the promotion of social inclusion through increased workplace participation (ss.134(1)(c) and 284(1)(b)); relative living standards and the needs of the low paid (ss.134(1)(a) and 284(1)(c)); the principle of equal remuneration for work of equal or comparable value (ss.134(1)(e) and 284(1)(d)); and providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability (s.284(1)(e)).

 8   For example, the need to encourage collective bargaining (s.134(1)(b); see also s.3(f)).

 9   Master Grocers of Australia submission at p. 11; Australian Retailers Association submission at p. 5.

 10   ACTU submission, p. 8 at para. 39–40; ACCER submission, pp. 104–105, at para. 337; ACCER submission in reply,
pp. 1–2 at para. 3.

 11   Ai Group submission, pp. 3–4 at paras. 4–5; National Farmers’ Federation submission, p. 5 at para. 1.7; Motor Trade Association of South Australia submission at p. 8; ACCI submission, p. 31 at para. 156; Chamber of Commerce and Industry Western Australia submission at p. 1; Australian Federation of Employers and Industries submission, pp. 4–5 at para. 9; AHA submission at p. 3; Victorian Automobile Chamber of Commerce submission at p. 4; Chamber of Commerce and Industry Queensland submission, p. 21 at para. 7.2; ANRA submission at, p. 4 at paras. 1.1–1.2.

 12   ACCI submission, p. 31 at para. 156.

 13   AMWU, AWU, CEPU, NTEU and APESMA joint submission at p. 2.

 14   Government of South Australia submission at p. 22.

 15   Ai Group submission, p. 10 at paras 27 and 30.

 16   ACCI submission, p. 37 at paras 168–9.

 17   ACTU submission, p. 19 at para. 90.

 18   Transcript at para 300, 14 May 2012.

 19   Australian Government submission, p.9 at para 7.

 20   Australian Government post-Budget submission, p. 3 at para. 4; ACCI post-Budget submission at p. 2.

 21   ACTU post-Budget submission, p. 2 at para. 10.

 22   Australian Government submission, p. 13 at para. 39.

 23   ACCI submission in reply at p. 5.

 24   Australian Government submission, p. 19 at para. 34; Victorian Government submission, p. 7, at para. 2.11.

 25   ACCI submission, p.45 at para. 183.

 26   ibid., p. 51 at para. 196.

 27   ACTU submission in reply, p. 3 at para. 14.

 28   Australian Government post-Budget submission, p. 5 at para. 15; ACCI post-Budget submission, p. 7 at para. 12.

 29   Australian Bureau of Statistics, Catalogue No. 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec 2011.

 30   All data are seasonally adjusted unless otherwise noted.

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

 32   Transcript at paras 393–4, 14 May 2012.

 33   The GDP per hour worked series has been replaced by gross value added per hour worked in the market sector in accordance with principles recommended by the OECD. Australian Bureau of Statistics, Australian System of National Accounts, 2010–11, Catalogue No. 5204.0, pp. 7–8; and Organisation for Economic Co-Operation and Development, Measuring Productivity, Measurement of Aggregate and Industry-Level Productivity Growth, OECD Manual, 2001.

 34   Australian Bureau of Statistics, Catalogue No. 5676.0 - Business Indicators, Australia, Dec 2011.

 35   ibid.

 36   Insolvency and Trustee Service Australia, June 2010; Australian Bureau of Statistics, Catalogue No. 6291.0.55.002 - Labour Force, Australia, Detailed Quarterly, Feb 2012. Note: Business bankruptcy rate adopted from Bickerdyke, I, Lattimore, R, and Madge, A, 2000, Business Failure and Change: An Australian Perspective, Productivity Commission Staff Research Paper, Ausinfo, Canberra.

 37   The trimmed mean is calculated by using a weighted average of percentage changes from the middle 70 per cent of the distribution of price changes. The weighted median is the price change at the 50th percentile by weight of the distribution of price changes.

 38   The CPI and ALCI differ in their approach to three areas of expenditure: purchase of dwellings; purchase of durable items; and financial services and the use of credit.

 39   Australian Bureau of Statistics, Catalogue No. 6463.0 - Analytical Living Cost Indexes for Selected Australian Household Types, Mar 2012.

 40   Australian Bureau of Statistics, Catalogue No. 6345.0 - Labour Price Index, Australia, Mar 2012; original data.

 41   Australian Government submission, p. 18 at para 30.

 42   Australian Bureau of Statistics, Catalogue No, 6202.0, Labour Force Australia, April 2012.

 43   Based on the ANZSIC 1993 classification—see [2011] FWAFB 3400, p. 45, Table 3.5.

 44   This differs from the definition under s.23(1) of the Act, which states that a national system employer “is a small business employer at a particular time if the employer employs fewer than 15 employees at that time”.

 45   Australian Bureau of Statistics, Catalogue No. 6306.0, Employee Earnings and Hours, Australia, May 2010, Table 7.

 46   ACTU Submission, p. 9 at para. 47.

 47   Fair Work Australia, Award-reliant small businesses, Research Report 1/2012, p. 72, Table 6.19.

 48   Australian Bureau of Statistics, Catalogue No. 6306.0.55.001 - Employee, Earnings and Hours, Expanded Confidentialised Unit Record File, 2010, .

 49   Fair Work Australia, Award-reliant small businesses, Research Report 1/2012 at p. 108.

 50   Australian Bureau of Statistics, Catalogue No. 8615 - Counts of Australian Businesses, including entries and exits, Australia.

 51   Lowe P, Developments in the Mining and Non-mining Economies, Address to the ADC Future Summit 2012, 14 May 2012.

 52   Parkison M, Macroeconomic Policy for Changing Circumstances, Annual post-Budget Address to the Australian Business Economists, Sydney, 15 May 2012.

 53   The ANZ Job Advertisements series has not been included as the ANZ reported that that it is “investigating the reliability of data provided by a small internet website, which has been driving the recent improving trend in overall job advertising. As a result, greater caution should be given to the results of the job ads series in recent months. This may reflect data error or double counting of jobs already advertised on other larger internet websites” [ANZ Research, Media Release, Job advertising falls 3% in April, Monday 7 May 2012].

 54   Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2012-13, Canberra, 2012 at p.2-5.

 55   ibid.

 56   Transcript at paras 319–20.

 57   ACCI Post-Budget submission, p. 7 at para. 11.

 58   Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2012-13, Canberra, 2012 at 2-32–33.

 59   op. cit., Lowe.

 60   Stevens G 2012, Evidence to the House of Representatives Standing Committee on Economics, 24 February 2012.

 61   Reserve Bank of Australia, Statement on Monetary Policy, May 2012 at p.2.

 62   Gruen D, The Macroeconomic and Structural Implications of a Once-in-a-Lifetime Boom in the Terms of Trade, Address to the Australian Business Economists Annual Conference, 24 November 2011; and Gruen D, Evidence to the Senate Economics Legislation Committee, 16 February 2012, cited in ACTU Submission, p.65 at para. 243.

 63   ibid., The Macroeconomic and Structural Implications of a Once-in-a-Lifetime Boom in the Terms of Trade at p. 6.

 64   ibid. at p. 7.

 65   ibid. at p. 18.

 66   ACTU Submission, pp.63–4 at paras 239–40.

 67   op. cit. Reserve Bank of Australia at p. 42.

 68   Australian Government, Budget Paper No. 1: Budget Strategy and Outlook 2012-13, Canberra, 2012 at p. 2-33.

 69   Australian Government submission, pp. 28–9 at para. 41.

 70   ACTU Submission, p. 38, Figure 21.

 71   ACTU submission, p.22 at para. 100.

 72   Connolly E and Orsmond D 2011, ‘The Mining Industry: From Bust to Boom’, Research Discussion Paper 2011–08, Reserve Bank of Australia, Sydney, pp. 28–9.

 73   Stevens G, Evidence to the House of Representatives Standing Committee on Economics, 24 February 2012.

 74   Fair Work Act 2009 (the Act), ss. 284(1)(c); 134(1)(a).

 75   Australian Government submission, p. 63 at para 33.

 76   ACTU submission, p. 84 at para. 315.

 77   ACCER submission, p. 63 at para. 202.

 78   ACCI submission, p. 22 at para. 116.

 79   Fair Work Australia, Statistical Report—Annual Wage Review 2011–12, Table 8.1.

 80   ibid., Chart 8.1. The WPI has grown by less than median earnings, AWOTE and AWE over this period because it is designed to be unaffected by compositional changes in the workforce.

 81   ACTU submission, p. 121 at para. 483.

 82   Ai Group submission, pp. 27–8 at paras 78–82.

 83   ACOSS submission at p. 17

 84   ACTU submission, p. 82 at para. 309.

 85   Australian Government submission at p. 59

 86   [2010] FWAFB 4000 at para. 239.

 87   ibid. at para. 242; and [2011] FWAFB 3400 at para 205.

 88   Australian Government submission, at para. 35.

 89   Australian Government supplemental Material to Fair Work Australia 2012 Annual Wage Review at p. 3.

 90   Ai Group submission at para. 100.

 91   ACCI post-Budget submission, p. 7 at para. 13.

 92   Australian Government submission, p. 45 at para. 18.

 93   Fair Work Australia, Statistical Report—Annual Wage Review 2011–12, April 2012, Tables 11.1–11.12.

 94   ibid. Tables 10.1–10.5.

 95   Australian Government submission, p. 48 at para. 26. See also Chart 5.1.

 96   PR517718 at paras 40–1.

 97   [2010] FWAFB 4000 at para. 245; [2011] FWAFB 3400 at para. 230.

 98   ACCI submission, pp. 19–20 at paras 92–102; Ai Group submission at p. 38, paras 107–11 and p. 42 at paras 122–6.

 99   Ai Group submission, p. 41 at para. 119.

 100   ACTU submission, p. 102 at paras 386 and 392.

 101   ACTU submission, p. 56 at para. 220.

 102   Department of Employment, Education, Training and Youth Affairs, 1998, Evaluation of Working Nation, labour market elements.

 103   Hyslop D, Maré C, Stillman S and Timmins J 2008, Heterogeneous firm responses to rising teenage wages in New Zealand in AFPC, 2008 Minimum Wage Research Proceedings, Vol. 1 at p. 95–118.

 104   Dube A, Lester TW and Reich M 2010, ‘Minimum wage effects across state borders: Estimates using contiguous counties’, The Review of Economics and Statistics, November 2010, Vol.92, No.4, 945–64; Dolton P, Rosazza-Bondibene C and Wadsworth J, ‘Employment, Inequality and the UK National Minimum Wage over the Medium-Term’, Discussion Paper No. 5278, IZA Institute for the Study of Labor.

 105   Manning A ‘Minimum Wage: Maximum Impact’, Resolution Foundation, April 2012.

 106   Hyslop D and Stillman S 2004, ‘Youth Minimum Wage Reform and the Labour Market’, New Zealand Treasury Working Paper 04/03.

 107   op. cit., Manning at pp. 5–6.

 108   op. cit., Hyslop et al. at p. 95–6.

 109   ibid.

 110   Wearne N, Southwell A and Selwyn B 2008, Employer responses to minimum wage adjustments, in AFPC, 2008 Minimum Wage Research Proceedings, Vol. 1 at p. 121-26.

 111   Fair Work Australia, Enterprise case studies: Effects of minimum wage-setting at an enterprise level, Research Report 7/2010.

 112   In that they indicated that pay their employees exactly the wages required by the modern award and passed on part or all of the increase as a result of the 2010–11 Review decision.

 113   Fair Work Australia, Enterprise case studies: Effects of minimum wage-setting at an enterprise level, Research Report 7/2010.

 114   Australian Government submission, pp. 48–55 at paras 27–42.

 115   ACTU submission in reply, pp. 29–31 at paras 134–7.

 116   Fair Work Australia, Statistical Report—Annual Wage Review 2011–12 at pp. 40–57, 16 March 2012.

 117   Australian Government submission, p. 40 at para. 34.

 118   Fair Work Australia, Statistical Report—Annual Wage Review 2011–12, Chart 12.1, 16 March 2012.

 119   Australian Government submission, p. 41 at para. 39.

 120   Australian Government submission, p. 42 at para. 41.

 121   ACTU submission, p. 100 at para. 379.

 122   ACTU submission, p. 100 at para. 380.

 123   ACTU submission, p. 99 at para. 377.

 124   ACTU submission, p. 98 at para. 374.

 125   Australian Government submission, p. 11 at paras 25–7.

 126   Ai Group submission, p. 44 at para. 133.

 127   AFEI submission at p. 27, para. 48.

 128   ACTU submission in reply, p. 17 at para. 80.

 129   ACTU submission, p. 73 at para. 274.

 130   ACTU submission in reply, p. 17 at para. 81.

 131   Healy J 2009, The Wages Safety Net of the Australian Industrial Relations Commission, 1993–2005, Unpublished PhD thesis, National Institute of Labour Studies, Flinders University at p.140.

 132   ACCER submission at p. 4.

 133   [2011] FWAFB 3400.

 134   Australian Bureau Statistics, Catalogue No. 6306.0 - Methods of setting pay, Weekly total cash earnings–Distribution of full-time non-managerial adult employees.

 135   [2010] FWAFB 4000 at para. 302.

 136   [2011] FWAFB 3400 at para. 281–2.

 137   Minimum wages and their role in the process and incentive to bargain.

 138   the Act, ss.284(1)(d) and 134(1)(e).

 139   ACTU submission, p. 109 at paras 426–7.

 140   ACTU submission, p. 109 at para. 423.

 141   Matter no. C2010/3131; Australian Government submission, p. 10 at para.16; Ai Group submission, p. 49 at para. 147.

 142   South Australian Government submission at p. 15.

 143   ACCI submission, p. 25 at paras 125 and 128; ABI submission at p. 34.

 144   ABI submission at p. 36.

 145   [2011] FWAFB 3400 at para. 296.

 146   Fair Work Australia, Review of equal remuneration principles, Research Report 5/2011, February 2011 at p. 60.

 147   Fair Work Australia, Award reliance and differences in earnings by gender, Research Report 3/2012, February 2012, p. 57.

 148   [2010] FWAFB 4000 at paras 424–6; [2011] FWAFB 3400 at paras 409–13.

 149   [2010] FWAFB 4000 at para. 424; [2011] FWAFB 3400 at para. 411.

 150   ACCI submission, p. 17–33 at paras 841–60.

 151   The Australian Hotels Association, the Australian Retailers Association, the Chamber of Commerce and Industry Western Australia submission, the Australian Federation of Employers and Industries; the Australian National Retail Association and Restaurant and Catering Australia.

 152   See generally ACCI submission at paras 160–7.

 153   ACCI reply submission at para. 5.

 154   There is a precedent for such decisions, see for example [2011] FWAFB 2700 (Equal Remuneration Case), which ruled on the merits of the application. The final decision ([2012] FWAFB 1000), determined quantum/remedy of the application. The actual order is yet to be finalised.; ACCI reply submission, p.1 at para 6.

 155   the Act, s.284.

 156   the Act, s.286.

 157   the Act, ss.287(1) and (4).

 158   See the Act, s.286(2) and 287(4)(b).

 159   Transcript at paras 442–52.

 160   Transcript at paras 549–54.

 161   (1983) 291 CAR 3 at 21.

 162   Print G3600.

 163   1986 National Wage Case decision (1986) 301 CAR 611 at 659; Re Motels Award [Print K2236], Re 1990 Pastoral Industry Award case [Print J1761] at p. 9.

 164   Re Musicians’ Hotels Award 1982 (1983) 289 CAR 351.

 165   Re Food Preservers’ Award 1973, (1982) 285 CAR 10; 1990 Pastoral Industry Award Case [Print J1761].

 166   April 1997 Safety Net Review—Wages decision (1997) 71 IR 1 at 17.

 167   (1989) 27 IR 196 at 201.

 168   (1988) 25 IR 170.

 169   (1997) 75 IR 268 at 297–9.

 170   (2002) 123 IR 240 at 253.

 171   For example see [2009] AIRCFB 50 at paras 46–8 and [2009] AIRCFB 345 at paras 43 and 94.

 172   ACCI submission, p. 11 at paras 47–50.

 173   ibid. at para. 50 (footnote 9).

 174   Chamber of Commerce and Industry Western Australia submission at p. 1.

 175   Business SA submission, p. 3 at para. 2.4.

 176   [2011] FWAFB 3400 at paras 316–7.

 177   MA000004.

 178   MA000003.

 179   [2010] FWAFB 4000 at paras 344–7; [2011] FWAFB 3400 at paras 320–3.

 180   [2010] FWAFB 4000 at para. 345.

 181   Australian Bureau of Statistics, Catalogue No. 8501.0 - Retail Trade, Australia, Mar 2012.

 182   Australian Bureau of Statistics, Catalogue No. 6291.0.55.003 - Labour Force Australia, Detailed Quarterly, Feb 2012.

 183   Australian Bureau of Statistics, Catalogue No. 8501.0 - Retail Trade, Australia, Mar 2012.

 184   Australian Bureau of Statistics, Catalogue No. 5676.0 - Business Indicators, Australia, Dec 2011.

 185   Australian Bureau of Statistics, Catalogue No. 6291.0.55.003 - Labour Force Australia, Detailed Quarterly, Feb 2012.

 186   Australian Bureau of Statistics, Catalogue No. 5676.0 - Business Indicators, Australia, Dec 2011.

 187   See ACTU submission, p. 25 at para. 109 and Table 9.

 188   Stevens G 2012, Evidence to the House of Representatives Standing Committee on Economics, 24 February 2012 at pp. 2 and 4.

 189   Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Transitional Act), items 10 (1) and 20 (1) of Sch. 9 and item 12A(5) of Sch. 3.

 190   [2010] FWAFB 4000 at paras 370–96.

 191   Fair Work Australia, Minimum wage transitional instruments under the Fair Work Act 2009 and the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, Research Report 06/2010, June 2010.

 192   [2011] FWAFB 3400 at para. 354.

 193   ibid. at para. 353.

 194   Transitional Act, item 3 of Sch. 5. On 22 June 2011, Justice Giudice issued a statement ([2011] FWA 3953) in which it was indicated that a list of instruments capable of being terminated would be published on the termination of instruments page of the Fair Work Australia website. Individual members were subsequently allocated to hear submissions in relation to the terminations. As at March 2012, approximately 1320 instruments had been terminated.

 195   [2011] FWAFB 3400 (para. 344) acknowledged that most of Division 2B State awards had sunset and terminated as of 31 December 2010. Other instruments, including Division 2B State awards continued on by operation of the Fair Work (Transitional Provisions and Consequential Amendments) Regulations 2009. One category of these instruments, that is Division 2B State awards, state reference transitional awards and transitional APCSs derived from instruments which covered employees participating in employment schemes in Queensland known as the Community Jobs Plan and the Green Army are set to terminate on 30 June 2012 (Regs 3.04 and 3A.01).

 196   [2012] FWAFB 1000 at para. 74.

 197   Transitional Act, items 5(2) and 9(4) of Sch.6 and item 5 of Sch. 6A.

 198   Fair Work (Transitional Provisions & Consequential Amendments) Regulations 2009, Reg. 3A.01.

 199   ACTU submission, p. 119 at para. 473; ABI submission at p. 37.

 200   [2011] FWAFB 3400 at para. 351.

 201   Transitional Act, item 12A of Sch. 3 and items 10 and 20 of Sch. 9.

 202   the Act, s. 284(3).

 203   ACTU submission, p. 112 at paras 439–43; ACCI submission, p. 25 at para. 129; Ai Group submission, p. 54 at para. 159.

 204   ACTU submission, p. 112 at para. 441.

 205   ibid., pp. 114–5 at paras 451–8; ACCI submission, p. 25 at para. 129; Ai Group submission, p. 54 at para. 159.

 206   ACCI submission, p. 26 at para. 131.

 207   ACOSS submission at p. 55.

 208   ACTU submission, p. 115 at para. 456.

 209   ACCI submission, p. 25 at para. 129; ACOSS submission at p. 9; Ai Group submission, p. 54 at para. 159; ACTU submission, p. 116 at paras 459–62.

 210   ACTU submission, p. 116 at para. 462; Ai Group submission, p. 54 at para. 160.

 211   ACTU submission, p. 119 at para. 478; Ai Group submission, p. 54 at para. 159.

 212   the Act, s.295(1)(b).

 213   ACTU submission, p. 118 at para. 469; Ai Group submission, pp. 60–1 at paras 182–3.

 214   ACTU submission, p. 120 at para. 479; Ai Group submission, p.60 at para. 181.

 215   Ai Group submission, p. 45 at para. 136; Business SA submission, p. 6 at para. 4.2.8.1; Master Grocers Australia submission at p. 5, p. 9 and Appendix 1; Australian National Retail Association submission, p. 3 at paras 6–8.

 216   MA000104.

 217   ACTU submission, p. 115–8 at paras 456–68; Ai Group submission, p. 57 at paras 167–9.

 218   ACTU submission, p. 118 at paras 456–68; Ai Group submission, pp. 58–63 at paras 170–88.

 219   ACTU submission, p. 118 at paras 465–8; Ai Group submission, p. 57–58 at paras 167–73 and 187–8.

 220   [2011] FWAFB 3400 at para. 408.

 221   Ai Group submission, p. 54 at para. 160; ACTU submission, p. 116, paras 459–62.

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