Minimum Wage Determination in Australia - Case Study Example

Case Study: Minimum Wage Determination Name Institution Case Study: Minimum Wage Determination The importance of the minimum wage rate determination is to have the worker acquire a decent life style by ensuring that they meet their basic needs without putting strain on the economy. The first attempt to fix minimum wages was made in 1970 in an International Labour Organization Convention on Minimum Wage Fixing. Its main aim was to give all workers fair consideration in terms of monetary rewards to enable them gain some form of social protection (ILO 1996). The developments have been fast in many parts of the world including Australia. There has been national legislations. For example Australia has adopted the requirements of International Labour Organization Equal Remuneration Convention. Australia did this by enacting the Work place Relations act. The act provided guidelines to both the government and the private sector on best practices of handling people with diverse geographical and cultural backgrounds (Sappey et al. 2006). The framework for human resource policy is henceforth more standardized and identifiable with the International guidelines. This was followed by the Fair Wages Act whose primary purpose was to bring fairness in the level of remuneration that wage earners take home. Both the Australian council for trade unions and the Australian Chamber of Commerce and Industry Made Submissions regarding their views on what should be done during the revision of the minimum wage by the panel. Each of the parties presented the basis for justifications of the proposed course action. This paper evaluates the approach that these bodies apply in pushing for justifiable minimum wage rates and the extent to which their views were incorporated in the decisions of the Minimum age Panel. The ACTU, relied on a number of objects and economic fundamentals to argue its case. It cited the loop holes in the Work Relations Act that got corrected in the new Fair work Act. Based on this it called for fairness in the process of setting the minimum wages for junior workers. It particularly emphasized on real increase in minimum wages in line with the requirements of the act that provides for social inclusion of award dependent workers. The council observed that in the time between 206 and 2011, minimum wage rate rose by 15.1%, but the consumer price index rose by 15.4%. Though this suggest some harmony in the trends of these two attributes, average wage rates rose by a higher 26.7% which is a reflection of unfairness in the relative living standards of workers indifferent categories. Worse even is the fact that real wages have not increased beyond the 2006 level besides constant increases by the panel due to inherent economic conditions that deter real change in the purchasing power of the award dependent employees. The council relied on HILDA data to demonstrate that the level of award dependent workers has increased from 17.4% in 2008 to 28.5% today. This calls for more serious consideration for their welfare more than before since the decision would now impact a larger portion of the population. With respect to economic conditions the council submitted evidence supporting sustainable economic growth. Inflation was reported as constant. The cost of living is rising faster but the wage growth is moderate. The economy has recovered from the effects of the euro zone crisis hence economic situation is promising for investors. The wage share from the national cake is at its minimum since 1960. These conditions underline the strain that falls on the low income wage earners since they represent fixed purchasing power in a rising price level economic situation. The constant inflation suggests that employers can support higher wage rates at least for the award dependent workers. The council submissions also showed that employee compensation has lagged behind productivity in real terms. This means that over time the employers have been earning the higher share of the annual growth in output. The minimum wages have also fallen relative to the average wages implying that the income gap between middle class employees and junior employees has widened over time. The council recommended based on these facts that minimum real wage be increased in line with the mentioned fundamentals. It also disregarded any postponement of increase in minimum wage increase beyond July first. It also cautioned about the much ignored effects of consumer price index in minimum wage determination and recommended that the same be considered at least in every seven to ten years. The Australian Chamber of Commerce and Industry (ACCI) presented its submissions as evaluated herein. It put to the notice of the panel that they bear the burden of increased minimum wage yet they are the determinants of the new employment. It also noted that Australia has the highest minimum wage rate in the world and hence further increase would put more burden to an already over stretched system. The Chamber sought to clarify some misinterpreted issues. For instance, it reported that much of the capital increases used as basis for wage increases have gone into mining engagements that are not particularly labour intensive. The neglect of the effects of decisions to increase minimum wages on persons who are indirectly but closely related to the awards is in itself flawed. The panel was called upon to consider some numerical facts regarding increase in the minimum wage. That past increases in the minimum wage by 10% resulted into decreased employment levels by 2-8%. That currently average labour costs for producers plus associated taxes and other mandatory contributions account for 50% of the total production costs. A further increase would see production unsustainable with current numbers of workers and hence employers would retrench or cut down new employment initiatives. The Chamber wanted the panel to apply the effects of past decisions on increase in minimum wage and observe the negative effects they have brought to the workers and the economy leave alone the employers. Increase in award rates forces employers to hire low skilled labour which is imprudent for innovation in the country. There have been massive losses in jobs out of such decisions in the past. Increase in wage rates makes the previously unprofitable turn profitable and companies go for technology based production leaving many workers unemployed. The panel was also required to consider the plight of the unemployed and underemployed. It was also brought to the attention of the panel that the lowest paid workers in Australia do not come from poor households and that when wage rates rise above the worth of a worker’s services his/her employment is terminated. The Chamber requested the panel not to increase minimum wage by more than $9.40 per week. It was also against any percentage increase. The minimum wage panel is bound to consider many factors before coming up with any decision. Some of the factors the panel has to consider include the general objects of the Fair Wages Act; economic conditions prevailing in the country and the world; living standards of the various classes of workers; the evidence of the ability of the reward dependent employees to meet their basic needs and promotion of social inclusion for the low wage earners. In reaching its decision there are three main guiding principles that the panel need to follow to ensure that any decision they take is in line with fairness and requirements of the minimum wage determination. One is to ensure fairness in the relative living standards of the workers doing the same quality of job and reasonable differences in the ranges of income between the highest earning workers and the lowest earning counterpart. Second is that it has to ensure equal pay fro equal work done. This entails harmonizing sectoral wage rates for the same class of employees based on their contribution to the organizations they work for. Finally is to ensure fair real minimum wage for junior workers. This involves determination of the least amount of wage an employee should take home regardless of the contribution or class. The minimum wage rate applies for all employers whether big or small-scale. The panel made its own analysis of the various factors to guide its decision. The level of profitability for the employers in the country was regarded as robust. Unemployment as at April 2012 was at low levels implying that previous increases in the minimum wage had not impacted negatively on the country’s employment levels. That there was preponderance of evidence to suggest that the economy would perform well in the 2012-2013 fiscal year. The output level was anticipated to be high while the wage rate would generally be moderate going by the market forces of demand and supply. The inflation levels would be constant at acceptable levels and there is no reason to suggest that the central bank would interfere with money supply or exchange rates. Household consumption was expected to grow by 3% per annum. Based on these fundamentals the panel reached the following decisions. The minimum wage rate would be increased by 2.9% which would be a moderate increase and sustainable with the said status of the economy. The panel also proposed an increase in the geneal wage rate by $17.10 per week. There would be no deferral to the increase as requested by the Australian Chamber of Commerce and Industry. The reason for this decision is that the events of natural disasters did not qualify as exceptional cases. References ILO, 1996, ‘Minimum wage fixing in Brazil,’ Labour Law and Labour Relations briefing note No 2. Peetz, D 2006, Brave New Work Place: How Individual Contracts are changing Our Jobs, Allen and Unwin, Sydney. Prasad, P, Judith, KP & Alison, MK 2006, ‘Examining the Contours of Workplace Diversity: Concepts, Contexts and Challenges,’ in Alison M. K & Judith K. P. (eds), Handbook of Workplace Diversity, Sage, London, pp.1-22. Public Service Act 2008, Queensland Sappey, R, John B, Michael, L & Jeremy, B 2006, The New Federal Workplace Relations System, Pearson Education Australia, Sydney. Read More