Pay freeze

Pay freeze for low paid workers is unfair and discriminatory, say unions 8 July 2009 A pay freeze for workers reliant on minimum award wages is unfair and discriminatory, say unions.

The decision to freeze award minimum wages will leave more than 1.3 million Australians worse off in real terms.

The average award worker will lose about $16 a week until the next wage decision is due in July 2010. ACTU Secretary Jeff Lawrence said:

“It is unfair for low paid workers to be discriminated against in this way.

“They should not have to bear the burden of the economic downturn when people on higher incomes such as executives are the ones who can afford to tighten their belts.

“Executives and other people on high incomes will not be affected by the pay commission’s decision, only workers that are reliant on award minimum wages and have little bargaining power.

“The pay freeze will counter the effect of the Federal Government’s $900 a week stimulus payment for more than 13% of the workforce and will undermine consumer demand.

“Any green shoots of economic recovery will be nipped in the bud by this unfair and unwise decision.

“Less money in workers’ pockets will mean shops and businesses will suffer a decline in sales and this could harm the economy.

“It’s a free kick for those employers who won’t have to give their staff a pay rise this year but it comes at the expense of the living standards of working families,” said Mr Lawrence.

Jeff Lawrence letter to Professor Ian Harper Australian Fair Pay Commission.

‘ I am writing to raise serious concerns with the assumptions used in modelling commissioned by the Australian Fair Pay Commission of the employment impact of a rise in the minimum wage.

In the view of the ACTU, this modelling is seriously compromised by both the assumed wage rise and the time frame over which the calculations are based. These flaws undermine the argument presented in the Commission’s Reasons for Decision that a modest rise in the minimum wage would have a significant impact on employment.

The AFPC Minimum Wage Review 2009 Reasons for Decision states: The CIE estimates that if minimum wages were to continue increasing into the future at the rate that they did in 2008, the effects on employment and unemployment would be larger.

The ACTU understands that in the recent modelling undertaken for the AFPC, the Centre for International Economics has modelled a 3.1 per cent weighted increase in each of the years 2009 to 2015, based on the 2008 rate of increase of $21.66. To test this we have assumed that the nominal wage shock implemented in 2008 continues each year into the future. (CIE Interim Report 9 June 2009)

However, this assumption is unrealistic. It bears little relation to the AFPC 2006, 2007 and 2008 increases in minimum wages, which approximated increases in inflation, over the period since the last minimum wage adjustment, as applied to the Federal Minimum Wage.

Year Increase on FMW Increase in CPI since last minimum wages adjustment 2006 $27.36 5.65% 4.8% 2007 $10.26 2.00% 2.0% 2008 $21.66 4.15% 5.0%

The AFPC Reasons for Decision note that: Price inflation [is] forecast to slow to moderate or low rates [in 2009-10]. The Commonwealth Budget 2009 contains CPI forecasts and projections as follows: Budget Forecast/Projection 2008-2009 1.75% 2009-2010 1.75% 2010-2011 1.5% 2011-2012 2.0% 2012-2013 2.5% Source: Budget Paper No 1 CPI in both 2008-2009 and 2009-2010 is forecast to be 1.75 per cent.

Consistent with past AFPC practice, an increase in the FMW in 2009 approximating the CPI forecast would equate to an increase of $9.52 per week. However, the CIE has modelled a 3.1 per cent weighted increase based on the 2008 $21.66 increase on the FMW. A $21.66 increase on the current FMW is equivalent to a 4.0 per cent increase. As the table shows, none of the forecasts for the forward years approach a level of 4 per cent. This is a level of increase the AFPC has not contemplated in previous decisions.

The ACTU is therefore very concerned that in the research commissioned by the AFPC the CIE has modelled a wage increase in the years 2009-2015 that is inconsistent with the past practice of the AFPC to deliver increases approximating inflation over the year, as applied to the FMW. In doing so, the modelling appears to be fundamentally flawed.

Indeed, the ACTU continues to maintain that moderate increases in minimum wages do not have adverse employment outcomes and that there is ample evidence in support of our claim.

Finally, I wish to put on record our grave disappointment that the AFPC did not acknowledge in its published Reasons that even prior to this year’s decision, the real wages of 92% of pay scale reliant workers — more than one million workers — have declined since June 2005 under the system of setting minimum wages introduced by the Howard Government.

Cumulative inflation during the period from June 2005 to March 2009 was 12%. But the C14 pay scale (the FMW) was the only one to advance beyond that rate, by 12.24%. All other pay scales have failed to keep pace with inflation, including C10 (the tradesperson rate), which increased by only 10.28% over that period.

The ACTU is determined to vigorously pursue these matters and I look forward to your response to these concerns as a matter of priority considering the imminent winding up of the AFPC and the transfer of minimum wage setting functions to Fair Work Australia.

I also note that the President of Fair Work Australia will be convening a meeting shortly to consult over research priorities for the new minimum wage setting body.

The ACTU looks forward to participating in this new process and fully expects it to provide an opportunity to obtain more rigorous research that underpins fairer and more appropriate wage increases for low paid working Australians.’

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