2018 Mid-Year Pay Review

The setting for a June/July Pay Review for those on the minimum wage, those on average weekly earnings, senior professional staff and organisation leadership, is about to become front and centre.

There have clearly been observations made in various sectors of the community that wage increases are desirable given their impact on the community’s spending and well-being.  On the other hand, many major employers believe that the stimulus for positive wage increase will arise from significant investment which will, in part, be sponsored by a reduction in corporate tax rates.

In this setting, Australia’s wage rates are seen as high by international standards and corporate tax is considered high compared to many of our global competitors in the export market.  Australia’s consumer price movement in recent times has been modest and, in that context, has not sponsored a response from employers despite improving profitability to increase wages as their observations in relation to labour productivity, as distinct from other sources of productivity, have not encouraged such initiatives.

Unlike the immediate past, both major parties in the Commonwealth Parliament are supportive of the Coalition Government’s proposal to reduce taxes on the least well-paid.  indicatively, in the near term, this will add around $10 per week to the less well-paid in Australia’s workforce.

Recent decisions by the Fair Work Commission have indicatively progressively declined over recent years with minimum wage adjustments varying from 4.8% in 2010 to 3.3% in its 2017 decision.  The history of increases since 2010 are set out in the table below:

The table below gives the history of the Consumer Price Index over several financial years.

We understand that the Fair Work Commission’s adjudication has regard to a series of broad economic indices including productivity which they note, in recent reports, varies across industries, as does the level of both employment and unemployment.  Wages also vary across industries and locations.

The table below provides a 3-year scan of employment growth (%) by location.

The above table reveals growth through to November 2017 in employment of 3.72% over the prior year which was marginally negative (- 0.12% in 2016) on a national basis.  NSW reveals the strongest rate of employment growth with all States and Territories being positive other than the Northern Territory in 2017.

The Federal Coalition Government recently announced that since their election in 2013 over 1 million jobs have been added to Australia’s workforce.

On an industry basis, sector growth is far more variable, being highest in the 12 months to November 2017 in the arts & recreation services sector (17.73%) following negative growth in the prior 2 years, and the agricultural, forestry & fishing sector (10.14%) again being negative in the prior 2 years.

Other sectors to reveal positive growth were construction, retail trade, transport & logistics, education & training and accommodation & food services.  Significant declines in employment were noted in the manufacturing sector, administrative support services sector and public administration & safety.

Average weekly earnings have also varied by sector and location, the table below revealing average weekly earnings by sector as of November 2017, reveals the highest paying industries were mining, electricity, gas, water & waste services, financial & insurance services, construction, public administration & safety and transport.Average weekly earnings by State and Territory reveal that the highest paying region is the ACT followed by WA then NT, NSW, QLD and VIC with SA and TAS being the least well-paying States.

As highlighted in the table below, there is also variability between average pay levels in the private and public sectors as well as the annual rate of growth over recent years.  This information reinforces a potential concern, given that the majority of Australians are employed in the private sector, that rates of increase in the substantially funded public sector have exceeded those in the private sector.

With the above basic data and an awareness of variable submissions from government, industry groups and the ACTU, we understand that proposals before the Fair Work Commission are recommending increases from less than 2% through to the ACTU’s submission which is seeking an increase to the modern award minimum wage of 7.2% or $50.00 per week.  This would increase the minimum wage from the current $694.90 to $744.90, or from $18.29 per hour to $19.60.

The ACTU has also proposed minimum rates through the various award classifications from $55.14 (C13) through to $84.39 (C2b).  While acknowledging that productivity growth is slow, their submission highlights that the national minimum wage has not kept pace with the growth in labour productivity, as observed in real labour unit costs.

The AI Group’s submission to the Fair Work Commission highlights industry differentials and global competitiveness together with general economic indices as key factors in supporting their proposal for a 1.8% wage increase across all classifications, which equates to $12.50 per week in the national minimum wage and about $14.60 per week at the base trade level.  AI’s submission also supports the principle of equal remuneration for work of equal value and the importance of improving gender equality in the workplace.

The Australian Government in their submission reveals that over the last 10 years the national minimum wage rage has increased on average by 2.8% per year, in nominal terms, and 0.8% per year in real terms.  They reflect that this is higher than the growth in median fulltime earnings which averaged 2.7% per year in nominal terms and 0.7% per year in real terms.  They also reflect that the increase in the national minimum wage has been at a greater rate than inflation and in line with the wage price index which increased on average by 2.9% per year in nominal terms over the same period (their reference points are the latest data available in the 2017 calendar year).

Their submission also has regard to taxes and transfers which highlight variable circumstances facing families, as well as those of single tax payers, single parents, dual income couples, etc.  They also state that due to the increase in the minimum wage rate over the past 5 years, tax payable, particularly for fulltime minimum wage earners, has increased.

Their submission also highlights areas of gender inequality and the demographic attributes of the least well-paid members of the Australian workforce.  The Government’s submission indicates that up to 2.3 million Australians (22.7% of all employees) are paid an award rate (May 2016).  It reveals that 70.3% of award reliant employees are not low paid and more than a quarter are paid more than the median hourly wage ($29 per hour as May 2016).

The report makes reference to technological change, shifting demographics and changing consumer preferences which continue to affect the skills distribution in the labour market as well as creating new jobs and displacing others.  They report that the emergence of the gig economy presents new earning opportunities, particularly in the services sector, and has generated debate in Australia and elsewhere.  Research, however, reveals that less than 1% of the workforce presently participate in the gig environment.

The Government’s submission, while providing comprehensive demographic data, use a number of economic and demographic research data points to highlight the state of play in the world of employment without directing the Commission in their decision making though constantly reference the framework within which prior decisions have been made.

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