State Wage Case 2006 (No. 6) [2006] NSWIRComm 204

State Wage Case 2006 (No. 6) [2006] NSWIRComm 204 | Case summary | Zoe

[23]

INTRODUCTION 1 By its application of 10 November 2005, Unions New South Wales, the State Peak Council for employees, sought a State decision pursuant to s 51(1) of the Industrial Relations Act 1996 ("the Act") setting general wage-fixing principles through which, inter alia, upon application the rates of pay and allowances in awards may be increased by 4 per cent from the twelve-month anniversary date of adjustments to wages and allowances made under the State Wage Case 2005 (2005) 142 IR 337. 2 In the result, for the first time under the Act, the Commission is required to consider an application to set wage-fixing principles in the absence of a National decision (as defined in s 48 of the Act) triggering the operation of s 50 of the Act. 3 The circumstances by which this has come about - essentially the advent of the Workplace Relations Amendment (Workchoices) Act 2005 - are explained in the interlocutory decision of the Full Bench in Re State Wage Case 2006 [2006] NSWIRComm 67. In that decision, the Full Bench resolved two threshold matters: first, that a decision of the Commission on the present application could properly be described as a "State decision" within the meaning of the Act (so that the Commission had jurisdiction to grant the application); and secondly, that the Commission should not grant the application of the Commonwealth Minister for Employment and Workplace Relations ("the Commonwealth"), and a number of employer interests, to adjourn the application by Unions NSW until the question of adjustments to minimum wages had been dealt with at the federal level by the Australian Fair Pay Commission ("AFPC") and the Australian Industrial Relations Commission ("AIRC") sometime later this year or early in 2007. For different reasons, both of these issues have resurfaced and require some further comment before we consider the application proper. 4 At the substantive hearing, Employers First made fresh submissions based on factual material adduced during the hearing to the effect that a decision of the Commission on the present application would not be a "State decision" for the purposes of s 48 of the Act. In brief, Mr T McDonald for Employers First submitted that the application seeks to affect "award-dependant" employees within the jurisdiction only and as such employees do not exceed 40 per cent of employees within the jurisdiction, the majority of employees within the jurisdiction will not be affected. Hence, any decision will not affect, or be likely to generally affect, the conditions of employment of employees in New South Wales who are subject to the jurisdiction of the Full Bench. 5 This submission is fundamentally misconceived. The application is not an application for a general order for a 4 per cent wage increase; it is an application for general wage-fixing principles in accordance with which wages may be varied under the relevant statutory provision. The Commission is specifically empowered to set such principles by virtue of ss 51(1) and 51(4), which by their very nature apply to every employee subject to the Commission's jurisdiction. Although the practical effect of these principles will vary (depending upon different applications and the different circumstances of various groups of employees), there is no doubt that the general principles will apply to every employee. Thus, whilst it is correct to note that the combined operation of the principles may (upon further application) result in a wage increase of 4 per cent for a proportion of the employees only within the Commission's jurisdiction (predominantly those employees working under awards in unincorporated private businesses: 40 per cent on Mr McDonald's analysis, but an even lesser percentage if one included Crown employees, as one should), the limited operative scope of one facet of the general principles cannot form the basis to restrict the Commission's jurisdiction. In contrast, the Special Case Principle will apply to all employees (governmental and otherwise) within the Commission's jurisdiction. 6 This is not a mere function of the form of the application. The principles sought in this case are, by and large, a replication of those enunciated by the Commission in the State Wage Case 2005 (2005) 142 IR 337. Then, as now, they perform the function of establishing the broad parameters by which applications to make or vary awards or to establish or vary terms or conditions of employment, will be considered by members of the Commission. They are set in accordance with the objects of the Act and after a consideration of the range of adjustments to wages and conditions that are commensurate with notions of equity and fairness and economically sustainable outcomes. 7 In tandem with his submission discussed above, Mr McDonald submitted that the matter is comparable to our decision in Re State Wage Case 2006 [2006] NSWIRComm 67 that a decision by the AIRC in relation to safety net wages would not be a National decision. However, as we explained in detail in that case, the two issues are not comparable. While the AIRC retains jurisdiction over federal awards and the employees covered by them, the proportion of those employees in New South Wales that may be affected by any decision of the AIRC fixing safety net wages will be extremely limited. This is because the AIRC's function in setting the federal minimum wage has - except as it relates to "transitional employees" - been vested in the AFPC (and then further limited by the operation of s 511 of the Workplace Relations Act 1996 (Cth) ("WR Act")). 8 As a final observation relating to the application of the principles (not the Commission's jurisdiction), we note that although there was some debate on this issue no one ultimately submitted that we should limit any increase, if granted, to those employees falling within the Commission's jurisdiction at the time of any decision. In the event the WorkChoices legislation, or relevant parts of it, is found to be invalid as a consequence of the challenge in the High Court (the details of that challenge are referred to in Re State Wage Case 2006 at [27]), any decision increasing minimum wages, based on the claim by Unions NSW, will have general practical application. Depending upon the operative date of the variation to the relevant award, any increase would apply to employees of constitutional corporations (or a class of employee otherwise remaining in this jurisdiction by dint of the High Court's judgment). 9 Notwithstanding that the decision in Re State Wage Case 2006 was conclusive on the subject of delay, submissions urging delay have been repeated. Ordinarily, it would be sufficient to dispose of the issue in this judgment by a recitation of that history and a chastening of those parties against any prospect of cavilling with decisions given by the Commission. However, we consider that it is important, given the repeated insistence on comity by Employers First, Australian Business Industrial and Australian Industry Group ("the Joint Employers") and Printing and Allied Trades Employers Association that we elaborate on our earlier conclusion at [45] of Re State Wage Case 2006 that the strength of the contention that comity should be maintained is significantly weakened. 10 We do not propose to repeat all the observations we made in our interlocutory decision of 6 March 2006. It is sufficient to point to one singular, significant factor. By the passage of the Workplace Relations Amendment (Work Choices) Act 2005, the legislative scheme for wage fixation in the Federal industrial system under the WR Act so dramatically diverged from the requirements of the legislation governing our jurisdiction, in both its objects and provisions governing wage-fixing, as would render a deferral of our decision-making in favour of the AFPC a failure to properly discharge our statutory functions. 11 A core consideration in this respect is the fact that the AFPC conducts proceedings that are not required to be conducted in a judicial and transparent manner resulting in an administrative decision deriving from wage setting parameters that are not consistent with those required of this Commission under the statute that governs our powers and proceedings. 12 Take, for example, the central consideration of fairness in wage-fixing. Section 10 of the Act makes that factor the centrepiece of any award-making function exercised by the Commission. No such criterion is expressly found in s 23 of the WR Act, or elsewhere in that Act. 13 The respondent employer parties argued strenuously, however, that fairness did form part of those criteria, by the operation of s 23(c) of that Act, which is in the following terms: The objective of the AFPC in performing its wage-setting function is to promote the economic prosperity of the people of Australia having regard to the following: … … (c) providing a safety net for the low paid; … 14 We consider the employers' contentions are unsustainable for the following reasons: 1. Recourse was no doubt had to s 23(c) of the WR Act because no other aspect of s 23, or other provisions governing the AFPC (including the objects of the WR Act), establishes any criteria that have even a remote resemblance to the criterion of fairness. 2. This consideration alone has a significant impact upon the construction of s 23(c). In other words, the proposed interpretation of that sub-section strains against the general tenor of the other provisions of s 23 and the objects of the Act. Further, as a matter of construction, the reference to "a safety net for the low paid" in s 23(c) needs to be read in conjunction with the objects of the WR Act. Those objects condition the construction of the words appearing in s 23(c). Section 3(c) identifies the following objects: "providing an economically sustainable safety net of minimum wages and conditions for those whose employment is regulated by this Act". In our view, this conveys the true meaning of the legislature in relation to s 23(c) by indicating that the safety net for the low paid needs to be judged against purely economic considerations and not broader considerations of justice and equity which are encompassed within the concept of fairness. 3. This conclusion is amply supported by the now standard purposive approach to statutory construction. The Federal legislature has expressed a clear intention by the Workplace Relations (Work Choices) Amendment Act to remove the concept of fairness from the criteria to be applied in the establishment of a safety net. There has been removed from the former Act: · Reference to a "safety net of fair and enforceable minimum wages and conditions of employment" from s 3(d)(ii); · Reference to "a safety net of fair minimum wages and conditions of employment" which appeared in s 88A "Objects of Part VI - Dispute Prevention and Settlement"; and, · Reference to "a safety net of fair minimum wages and conditions of employment" appearing in the preamble to s 88B(2) (describing the Commission's functions in establishing a safety net). These references are specifically omitted in the counterpart provisions of the current Federal legislation in, for example, ss 3(c), 510(a) and 511 and there is not found elsewhere in the WR Act any similar criteria for wage fixation. 4. At a broader level, it is clear from the scheme of the federal Act that the legislature has intended that attention be shifted from broader considerations of fairness and equity in wage-setting to purely economic considerations, such as those described in s 23, as underpinning the AFPC's wage setting parameters. An important illustration is the reference in s 23(d)(ii) which relates to the revision of minimum wages for junior employees, employees to whom training arrangements apply and employees with disabilities. Nowhere is it stated in the wage fixing parameters for that group that fairness is to be a criterion but, rather, the singular parameter the AFPC is to have regard to is ensuring "those employees are competitive in the labour market". The legislature could have easily incorporated a requirement as to fairness in the provisions but did not do so. The absence of any provision dealing with such vulnerable employees is conspicuous. 15 We refer to these considerations at some length because, in our view, the persistent contentions advanced in favour of a comity of approach were plainly untenable, in particular the submissions by reference to the concept in its title that the AFPC is required to fix fair rates of pay. THE CLAIM

[32]

20 The Minister's submissions provided an overview of the state of the Australian and New South Wales economies; detailed the cost of the claim and the capacity of the economy to absorb it; examined the impact of the claim on labour force participation; examined the impact of the claim on employment; analysed the impact of the claim on productivity; addressed the needs of the low paid by examining income and expenditure characteristics of low paid workers and households; and, looked at the needs of vulnerable workers including women, indigenous people, migrants, young people and disabled workers. 21 In brief, the Minister for Industrial Relations submitted that a $20 increase to the minimum wage in New South Wales was an economically sustainable and responsible increase. It submitted that, notwithstanding the importance of maintaining wage relativities in awards, a flat increase was preferable to a percentage increase because it would increase the minimum wage at a slightly faster rate for the lowest paid workers (who have less bargaining power). Further, the increase would directly benefit the lowest paid workers in the workforce with a negligible impact on employment and productivity, and would be likely to promote increased participation. 22 The Minister submitted there were approximately 508,000 employees of unincorporated entities in the private sector of New South Wales who remained in the New South Wales industrial relations system. Of these it was said between 194,000 and 255,000 were reliant on minimum award rates and would receive a direct benefit from an increase to the minimum wage in New South Wales. Mr J V Murphy of counsel for the Minister acknowledged, however, that depending upon the outcome of the High Court proceedings the effect of granting the claim in whole or in part could be that any increase would flow to employees of constitutional corporations. Mr Murphy indicated that such a possibility made no difference to the Minister's position supporting a $20 increase to minimum award wages.

[49]

32 Since 1996 the legislative basis for adjusting minimum wages and allowances in New South Wales State Awards on an annual basis has been a combination of ss 48, 50 and 52 of the Act. That is to say, having considered national wage cases, and more latterly, safety net review decisions of the AIRC, this Commission has adopted those decisions with any amendment the Commission has considered necessary or appropriate given its statutory charter. On most occasions, however, any departure from the National decision has not been significant. 33 As we have already discussed, with the commencement of the WorkChoices legislation, there has been such a divergence of purpose between the Commonwealth and New South Wales industrial relations legislation that this Commission is now unable to adopt the pattern of the past for the reasons elucidated in our earlier decision. Consequently, in the absence of a National decision, the making of a State decision must be guided by other considerations, principally the terms of s 51 and secondly, criteria generally imposed by the Act. 34 Section 51(1) itself imposes two criteria: first, the making of a State decision must be consistent with the objects of the Act; and secondly, there must be good reasons for doing so. 35 The objects of the Act are to (inter alia) provide a framework for the conduct of industrial relations that is fair and just; to promote efficiency and productivity in the economy of the State; to encourage participation in industrial relations by representative bodies of employees and employers and to encourage responsible management and democratic control of those bodies; to facilitate appropriate regulation of employment through awards, enterprise agreements and other industrial instruments; and to encourage and facilitate co-operative workplace reform and equitable, innovative and productive workplace relations. 36 In addition to the broad considerations contained within the objects of the Act expressly imported by s 51(1), the section must be construed within the context of the Act as a whole so that it is consistent with the language and purpose of all the provisions of the statute: see for example Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381; Capral Aluminium Limited v WorkCover Authority of New South Wales (2000) 49 NSWLR 610 at [42] and [43] and Fox v GIO Australia Ltd (2002) 56 NSWLR 512 at [42]. 37 Thus, regard must be had to s 146(2), which requires the Commission, in the exercise of its functions, to take into account the public interest and (in addition to the objects of the Act) the state of the economy of New South Wales and the likely effect of its decisions on that economy. 38 Regard must also be had to s 10, which governs the Commission's award-making power. Section 10 provides that the Commission may make an award setting fair and reasonable conditions of employment for employees. It must follow that any general principles that precede the making or variation of an award (such as those embodied in a State decision) must be capable of setting fair and reasonable conditions of employment for employees. Not only is this consonant with first object of the Act; if the Commission did not, in the context of s 51, take into consideration whether general principles, would, upon application, result in fair and reasonable conditions of employment, the principles would have no utility for it would be beyond the Commission's power to embody them in any award. 39 Finally, it is appropriate to note the expansive manner in which s 51 has been drafted. The principles referred to in ss 51(1) and 51(4) include State Wage Principles, such as those embodied in the State Wage Case 2005 (2005) 142 IR 335. The word "provisions" may mean many things, but at the very least encompasses the alteration of the terms of an award by a decision, such as the decision in Secure Employment Test Case (2006) 150 IR 38. Although sub-section (3) does not fall to be scrutinised in this case, it is important to note that it contains a particularly broad reference to "other matters under this Act". Without needing to delineate the boundaries of that phrase, it must include "industrial matters" as defined under s 6 of the Act. 40 With that broad approach to s 51 in mind, we turn to consider in more detail the parties' approach to the proceedings and the economic evidence before the Commission. PARTIES' APPROACH TO PROCEEDINGS

[52]

44 In any event, in the result the applicant, in support of its claim, put a comprehensive economic case, with very substantial support being provided by the Minister for Industrial Relations' material. The employers' challenge to the applicant's case was not a strong one nor was their own economic case opposing the claim. Indeed, much of the applicant's economic case was not challenged at all. 45 Whilst Employers First had originally intended to rely on the evidence of Mr Bennett in support of its economic case, during the course of the proceedings that evidence was withdrawn. Subject to some slight degree of challenge in cross-examination to Dr Hughes' evidence about the affordability of the Unions NSW claim in respect of unincorporated businesses, Employers First did not seek to challenge any of Dr Hughes' evidence about the state of the national or New South Wales economy except to submit that in respect of the latter, the material tendered by the Minister for Industrial Relations in relation to its 2006-07 Budget painted a "slightly less rosy picture" of that economy than suggested by Dr Hughes. No material was tendered by Employers First as to why it was the NSW Budget papers painted a less rosy picture than that of Dr Hughes. Nor did Employers First challenge other economic material tendered by the applicant and took no issue with the assessment of the national economy contained in the 2006-07 Commonwealth Budget Papers. 46 Employers First relied on the evidence of Mr Gillan of the Restaurant and Catering Industry Association (NSW). We shall refer to that evidence in greater detail later in this decision. Similarly so in respect of the affidavit of Ms Owen of the Australian Retailers' Association. That material went largely to the proposition that the retail and hospitality sectors were vulnerable industries and granting the applicant's claim would be economically detrimental. 47 The Joint Employers tendered extensive economic material but in the light of the material contained in the Commonwealth and New South Wales Budget papers much of the Joint Employers' material was rendered out of date. No worthwhile attempt was made by the Joint Employers to come to terms with the up to date material in the Budget papers; no reference was made to the Reserve Bank's recent Statement on Monetary Policy issued on 5 May 2006 - a useful source of up to date economic information; there was no cross-examination of Dr Hughes; and, there was no acknowledgement at all by the Joint Employers of the overwhelmingly positive features of the national economy, or what Dr Hughes described as what was self-evidently the "longest sustained expansion for decades resulting in unemployment falling to levels not seen since the 1970s" in the national and New South Wales economies and the "favourable influences emanating from global developments which tend to dominate Australian, and in turn New South Wales conditions." 48 The Joint Employers' submissions tended to direct attention to speculative risks associated with the national economy without adequately, and in a balanced way, acknowledging the strengths of the national economy which otherwise received acknowledgement from every relevant source. 49 The Joint Employers submitted documentary material regarding the New South Wales economy and the outlook for manufacturing. The case in respect of the New South Wales economy, however, was limited to the following proposition: The NSW economy continues to under-perform relative to the Australian average and all other states… In 2004/05, the economy (as measured by gross state product in volume terms) grew by only 1.1%, compared to the national average of 2.3%. NSW was the only state to record growth below the national average, with the next nearest state, Victoria, growing at almost double that of NSW. 50 In relation to manufacturing much more substantial material was presented, although more from a national perspective than with a New South Wales focus. It was submitted that despite other parts of the economy experiencing moderate growth conditions, manufacturing was experiencing the effects of a significant cyclical slowdown in activity, as well as significant restructuring arising from global competition. Reliance was placed on National Account data for the December quarter 2005. 51 It was further submitted in relation to manufacturing: · While the economy grew overall by 0.5% in the December quarter (and 2.7% in annual terms), the manufacturing sector declined by 1.7% in seasonally adjusted terms. On an annual basis, the sector grew by only 0.4%, the fourth weakest of all sectors measured in the National Accounts.

[59]

· Ai Group is forecasting that manufacturing employment will fall by 3.9% in 2006. This forecast is premised on further tight conditions in 2006. 52 Whilst the material relating to manufacturing industry was helpful in understanding the economic and competitive pressures on the industry, and it must be acknowledged that manufacturing industry is facing significant challenges, there was no information provided by the Joint Employers as to the effect that an adjustment in minimum award wages might have on employment in that industry in New South Wales other than in a very general sense. For instance, we do not know with any certainty whether an increase would have any implications for employers who are members of the two organizations constituting the Joint Employers: are any of their members still within this Commission's jurisdiction; if so, do they pay overaward payments, as is commonly the case in manufacturing; have they negotiated enterprise agreements? None of this information was provided. This is very significant as common experience in industrial relations would indicate that these factors might well operate to eliminate any impact of the granting of the claim in this sector. 53 As we earlier noted, PATEA claimed that business conditions in the printing industry had deteriorated in the March quarter 2006. PATEA relied on an internal report. The report, however, was not tendered into evidence and provided no opportunity for the applicant or any other party to test the contents of the report or its conclusions. 54 To a significant - although by no means exclusive - degree, Unions NSW relied on the evidence of Dr Hughes to underpin its economic case for an increase in minimum award wages. Dr Hughes may be accepted as an expert in his field. He holds a PhD from Princeton University and was engaged in a distinguished academic career from 1965 to 1996. Between 1987 and 1996 Dr Hughes was Professor of Economics at Newcastle University. He has also been an economics correspondent for national and regional daily newspapers, a senior economic adviser to State and Commonwealth governments as well as being an economic consultant for large consulting and financial firms. 55 The Minister for Industrial Relations relied on documentary material to support its economic case for a $20 increase in minimum award wages and a witness statement of Peter Horn, Director Fiscal Strategy with the New South Wales Treasury. Mr Horn's statement went, essentially, to the recent economic performance of the New South Wales economy. Mr Horn relied extensively on the Treasurer's Budget speech and Budget Paper No 2 of the Budget Statement. We will come to this evidence in more detail in the context of our consideration of the New South Wales economy. AN OVERVIEW OF THE NATIONAL ECONOMY

[76]

· A risk that higher fuel prices, combined with solid wage outcomes, will feed into higher prices for other goods and services. 69 Nevertheless, it is reasonable to draw the conclusion from the material we have before us that there is a high level of confidence in the national economy and in its prospects for the near and medium term. The risks cited by the Joint Employers were also identified by the Commonwealth and employers before the AIRC in the 2005 Safety Net Adjustment Case. It does not appear to us that the risks have increased to any marked degree, if at all. Indeed, it is our assessment on the economic material available to us that the national economy is even stronger than it was 12 months ago. Consumption 70 Household consumption growth is expected to be a little below trend at 2¾ per cent in 2005-06 and is forecast to strengthen to 3 per cent in 2006-07. The Budget Papers note that this growth would deliver an increase in per capita consumption of around 1¾ per cent annually, but it would still represent a substantial slowing from the growth rates seen in 2003-04 and 2004-05. It was further noted that: While the household sector in aggregate is expected to maintain near-trend consumption growth through 2006-07 despite higher debt servicing, some households are carrying considerably more debt as a proportion of their income than the average. The consumption decisions of these households will be especially sensitive to changes in labour market conditions and interest rates, and to adverse external shocks such as a further increase in world oil prices. 71 In his submissions, the Minister for Industrial Relations stated: With slower employment growth, the rise in household consumption is expected to slow to about 2 ¾ per cent in 2005-06 from 4¼ per cent the previous year. Due to a flattening in house prices, higher debt servicing payments and the higher price of petrol, household consumption in the first half of the current financial year was up just 2¾ per cent on a year earlier. In the three months to February growth of retail sales, which make up about 40 per cent of household consumption, accelerated but that is not expected to continue. Dwelling construction fell by 1½ per cent in 2004-05, a slightly better result than had been forecast. The downturn deepened, however, in the first half of the current financial year and it now appears that the result for 2005-06 will be a bigger fall than had been forecast. A recovery is now expected in 2006-07. 72 The Reserve Bank's Statement on Monetary Policy in May 2006 stated in relation to the Household Sector at p 24: More recently, there were signs of a strengthening in spending in early 2006, with retail sales up by 1.6 per cent in the three months to February and 4.6 per cent higher over the year… Motor vehicle sales increased by 1.2 per cent in the March quarter compared with the December quarter. Consumer sentiment, as measured by the Westpac-Melbourne Institute survey, has also risen in recent months and is currently above its long-run average level. 73 Dr Hughes' evidence regarding domestic spending was in the following terms: Though domestic spending remains strong overall… vitality in some components making significant contributions earlier this decade has been reduced (household consumer spending) or disappeared (new housing). Housing demand, in Australia as elsewhere, benefited from greater percentages of the population being priced into potential ownership categories by lower interest rates. Again in common with many other parts of the globe, expansion of the market quickly led to an investment or speculative boom and a rapid rise in land prices eroding the initial affordability advantage. Owner-occupied demand expanded and then shrank, leaving only speculative demand to sustain the market. The latter is unsustainable in the absence of underlying demand, and so it proved. In terms of dwelling work done the peak rate of expansion occurred as far back as the year to June 2002, while the national house price boom peaked in late 2003, though price rises continue in parts of the country, especially Perth. Nationally, housing work done declined 2.1 percent over the year to December 2005. Earlier fears of a rout have not been realised and some signs of stabilisation are now apparent. Aided by wealth generated by sharply higher prices for the housing stock and by furnishing demand to fit out its expanded and altered state, consumer spending also grew at unsustainable rates earlier in the decade. At the peak first-half 2004 rates private consumption was growing at around double the 3 to 3¼ percent underlying potential pace of the entire economy. Since consumer spending accounts for 60 percent of the economy the laws of arithmetic do not allow such gross disparities to exist for long. Long before mechanical arithmetic projections would have consumption eating the entire cake the overall economy would overheat under the spending pressure. The consumer pace was unsustainable, so that the slowdown to 2.9 percent over the year to December of households' own volition has been a welcome development.

[79]

· Higher consumption growth detracts from saving and can increase the current account deficit. Household consumption may not be used for spending that will increase the sustainable growth rate of the economy. 76 The sensitivity of household consumption to interest rates, the current pressures on interest rates and external influences such as oil prices are moderating factors in any consideration of what might be an appropriate wage adjustment. Dwelling Investment 77 The Commonwealth Treasury expected that dwelling investment would fall by 1 per cent in 2006-07, following two years of small declines. It was noted in the Budget Papers that the downturn in the current housing cycle was mild by historical standards, and the risk of a sharp fall in house prices appeared to have largely abated. Underlying demand for new dwellings was expected to remain stable over the forecast period, with dwelling completions moving broadly in line with demand. 78 Treasury also noted that there has been substantial variation in the housing market by State: The Western Australia housing market has been markedly stronger, while the New South Wales housing market has been weak. 79 The Reserve Bank's observations in May 2006 at p 25 regarding dwelling investment were that: [T]he data continue to suggest that the current downturn has been comparatively mild by historical standards and dwelling investment as a share of GDP has remained high... This reflects both the increase in the relative price of housing construction over recent years and shifts towards larger and higher-quality dwellings, with a one-quarter increase in the average size of new houses and a rise in the importance of expenditure on alterations and additions to existing dwellings over the past decade. 80 In New South Wales the rate of decline in dwelling investment is expected to ease but housing investment has been one of the principal factors slowing State economic growth. The short-term outlook for dwelling investment in the State is subdued. Business investment 81 In his evidence relating to business investment, Dr Hughes stated: With demand, profitability and financial influences all favourable it is not surprising that business investment continued to be strong over 2005, annual growth now having been around 10 percent or better for 3½ years (chart 12). Total business investment grew 14.8 percent in the year to December quarter 2005, paced by an exceptionally strong 29.8 percent expansion of investment in engineering construction (or infrastructure). New investment in machinery and equipment grew 15.8 percent, while non-residential building (in offices, shops, hotels and the like) advanced sluggishly (4.6 percent) after a strong phase earlier in the decade. 82 Treasury stated in the Budget Papers that: Business investment has been strong for a number of years, growing by 75 per cent over the past four years. This is set to continue, with new business investment forecast to increase by 14 per cent in 2005-06, before moderating to 8 per cent in 2006-07. Business conditions remain favourable. Profits are strong, capacity utilisation is high, the cost of capital and corporate debt levels remain low and ongoing demand for Australian commodities is stimulating investment in the resource sector. 83 Chart 2 (Chart 6, Budget Paper No 1, Statement 3) shows the growth in new business investment:

[81]

· Unaffordable increases in award wages will reduce profits, providing fewer funds for investment; and · For resources, other countries with resources are experiencing capacity constraints and are investing strongly. If they bring investment on line more quickly than Australia, world supply will increase, prices will fall and Australia will miss the benefits of higher world prices. 85 However, the Reserve Bank in its May 2006 Statement expressed the following view at p 26 regarding the outlook for business investment: The outlook for business investment is favourable, given the good prospects for growth in the domestic and world economies. Although the December quarter capital expenditure (Capex) survey suggested a relatively subdued outlook for the period ahead, recent experience has been that the profile presented in the Capex survey has been significantly upgraded as the year has progressed. Accordingly, machinery & equipment investment growth is likely to be solid, but possibly slower than the pace recorded in 2005. The latest Rabobank survey suggests that investment intentions for farm equipment (which are not covered in the Capex survey) remain strong, at close to their pre-drought levels. Forward-looking indicators of non-residential construction also suggest a high level of activity over coming quarters, following the upswing over the past year. Nonresidential building commencements increased in the December quarter, and the amount of work approved continues to run well above the current level of work done. Engineering construction activity has been supported by the large amount of resource-related work underway, particularly in Western Australia. 86 The Reserve Bank noted, however, that conditions in the manufacturing sector continued to be weaker than in the rest of the economy but that there were indications that activity in the services sector had been especially strong, particularly in industries supplying services to businesses. 87 The Minister for Industrial Relations submitted: Private business investment rose by 12 per cent in 2004-05 on the back of an increase of almost 17 per cent in business spending on machinery and equipment and a 7 per cent rise in non-residential construction. After such rapid growth, a significant slow down had been expected in 2005-06. In the first half of financial year, however, the growth of spending on equipment slowed a little but there was a marked acceleration in non-residential construction. It now appears that growth of business investment this year will be only a little lower than in 2004-05. 88 Investment levels are currently strong and as a factor in the overall mix of economic considerations, favours the granting of a reasonable wage increase. Profits 89 Dr Hughes deposed that: Business confidence has been helped by profits taking a steadily increasing share of overall incomes... Recent levels of the profit share are the highest in the 46-year history of the quarterly national accounts, surpassing in the aggregate even the strong results obtained in the late 1960s. It has to be acknowledged that historical comparisons are difficult to make with precision due to the spate of privatisations especially during the 1990s. However, the wage share is not influenced by these developments. It has fallen over 2 percentage points so far this decade (from 56.1 percent in December 1999 to 53.8 percent six years later). Current wage shares are amongst the lowest since the late 1960s. 90 Extracted from Dr Hughes' evidence is a chart showing the wage and profit shares from total factor income:

[85]

96 The Reserve Bank, in its May 2006 Statement on Monetary Policy, also stated: [T]he IMF's latest forecasts, from the April 2006 World Economic Outlook (WEO), are for world growth to maintain its well-above-average pace in 2006 and 2007... Growth in 2006 is forecast to be among the strongest rates in the past 30 years. 97 Dr Hughes observed that the global backdrop sets an important tone for the domestic economy. He stated that while the correlations were not exact, "knowledge of the global result would have to come close to being the best single predictor of Australian outcomes. Prospects for further good global outcomes are thus important beneficial factors towards sustaining Australia's prosperity." 98 In relation to the United States economy the Budget Papers (Statement 3) contained the following observations: Economic growth has remained solid in the United States , despite the effects of natural disasters, tightening monetary policy and higher oil prices. Excess capacity continues to diminish, with capacity utilisation reaching its highest level in more than five years, and employment growth continuing at a solid pace. The outlook for domestic demand in the United States remains positive, with business investment expected to be the key driver, supported in the United States by strong corporate profits and benign financial market conditions. A soft landing looks most probable, but a crucial issue in determining whether the United States economy slows to a sustainable pace remains the speed of the housing slowdown. While the housing market is expected to continue to slow, due to rising mortgage interest rates and a moderation in price growth…, continuing solid employment growth is likely to prevent a sharp slowdown. Consumption growth is also expected to slow, with the impact of a weaker housing market, higher debt servicing costs and high energy prices expected to offset positive momentum from growth in employment and wages. Higher government spending is anticipated, due to rebuilding in the aftermath of the hurricanes and the continuing costs of military activities in Iraq and Afghanistan. Headline inflation has picked up in the United States during the last six months, reflecting the effects of higher energy prices. The labour market has tightened which, combined with slower productivity growth, may lead to upward pressure on wages and unit labour costs. However, to date underlying measures of inflation have remained in check and inflation expectations remain well-anchored. 99 We noted earlier that Treasury identified a number of uncertainties associated with the outlook for the world economy. The main risks to the global outlook were: global imbalances; high oil prices; increasing financial vulnerability; and, a possible influenza pandemic: In terms of the world economy, the outlook remains positive, though a number of potential risks remain. These risks include global imbalances, high oil prices, increased financial vulnerability and a possible influenza pandemic. Current account imbalances have continued to widen despite favourable conditions for policy makers to undertake reforms. While these imbalances may persist for some time without significant adverse consequences, they increase the vulnerability of the world economy to destabilising changes in financing flows. 100 In assessing the international outlook, the Joint Employers confined their attention to the United States economy and oil prices. In relation to the US, concern was expressed to the effect that "very large deficits could trigger a severe adjustment should confidence in the US economy falter and may require much higher rates of interest to be imposed on the economy." 101 In relation to oil, the Joint Employers submitted, "Oil is an input into most production processes, so higher oil prices are likely to drive up business costs and reduce profits."

[87]

103 Treasury expects net exports to subtract one percentage point from GDP growth in 2005-06 and ½ of a percentage point in 2006-07. The forecast for export growth is an increase of 7 per cent in 2006-07. 104 Treasury noted that export growth has been relatively weak since 2001-02, and remains significantly lower than the rates of growth recorded in the 1990s. However, it was expected most categories of exports would strengthen into 2006-07, especially non-rural commodities. 105 In commenting on recent export performance, Treasury stated: Export volumes have grown at an annual average rate of 0.6 per cent since 2000-01, well below the 20-year average growth rate of 5.9 per cent. There have been a number of contributing factors to the slowdown in exports, which have tended to play out sequentially over the last five years. Exports were first affected by a slowdown in world economic activity around the turn of the decade. The terrorist attacks on the World Trade Centre and SARS added to the effects of the global downturn and depressed the global travel industry. This had particularly adverse effects on exports of services. The drought of 2002-03, one of the worst on record, reduced rural exports significantly in the years that followed. The effects of the drought have gradually eased and favourable seasonal conditions since mid-2005 should support a recovery in rural exports. The Australian dollar appreciated by more than 20 per cent over the course of 2003, and has remained at a relatively high level. This has constrained exports, particularly of services and elaborately transformed manufactures (ETMs), which are yet to recover. Furthermore, ETM exports have been adversely affected by the global shift of manufacturing to emerging lower cost economies, particularly China. Looking ahead, this trend is likely to continue to affect ETM export growth. 106 Dr Hughes commented, "[T]here is concern that Australian exporters have not been able to take more advantage of the global spending strength of recent years. In fact export volumes have been unexpectedly sluggish". Dr Hughes opined: Apart from climate-induced swings in rural volumes what is most striking about the chart is the strong contrast between the vibrant performance of the 1990s (the "Asian crisis" period apart) and the sluggishness this decade. Double-digit annual volume growth was normal in the 1990s. Now it is a rarity, even in a minerals and energy sector blessed by good fortune. Australia has lost a significant share of its export markets. With hindsight explanations abound ranging from a high commodity-price-induced currency (affecting services and ETM volumes), new low-cost competitors (ETM), epidemics and terrorism (services), capacity constraints (minerals and energy) and the running down of Bass Strait oil production. For more than three years senior policymakers have been expecting export volumes to regain their former vitality. They remain expectant but are still awaiting realisation of their hopes. 107 On a somewhat more optimistic note in relation to resource, service and rural exports, the Reserve Bank in its May 2006 Statement has commented that: · Strong world demand and expansions in production capacity make for a positive growth outlook for resource export volumes over the remainder of 2006.

[95]

114 We note again that the Joint Employers did not suggest that the economy was unable to sustain any wage increase notwithstanding the difficulties confronting manufacturing, particularly on the export front, but rather that any wage increase had to be affordable. The Joint Employers, however, declined to state a position on what they considered to be an affordable increase. We further note that in 2005 the Australian Industry Group proposed to the AIRC in the Safety Net Adjustment Case that a safety net adjustment of $11 per week in all award rates would assist the low paid while not damaging the economy. The concerns expressed by that organisation regarding the economy in 2005 were very similar to those expressed to this Full Bench in these proceedings. Labour market/Unemployment Issues 115 Australia's unemployment rate was a seasonally adjusted 4.9 per cent in May 2006, compared with an unrevised 5.1 per cent in April. This is the first time unemployment has fallen below 5.0 per cent since 1976. Total employment rose 56,000 to 10.142 million, adjusted. Of this, full time employment increased by 55,800 to 7.254 million and part-time employment rose slightly to 2.888 million. Employment is expected to grow by 1¼ per cent through the year to the June quarter 2007. 116 In his submission, the Minister for Industrial Relations noted that: In 2004-05 employment growth was strongest in the mining industry which increased the size of its workforce by more than 10 per cent. Employment in construction grew by almost 8 per cent, in the hospitality industry - accommodation, cafes and restaurants - by almost 7 per cent, and in finance and insurance by 3½ per cent. In the first three quarters of 2005-06 employment in the mining industry accelerated but in most other industries it slowed. In some instances that might reflect a fall in demand but in some industries it seems to be due to a shortage of labour. For example, employment in the hospitality industry in the first eight months of this financial year was 2½ per cent lower than a year earlier but in the same period sales were up 5½ per cent. Employment in finance and insurance was also down in the first eight months of this year, although all the evidence suggests the industry is booming. 117 The Reserve Bank in its May 2006 Statement observed: Over the year to the March quarter [2006], employment growth was mainly concentrated in the construction and services sectors, with growth in the property and business services sector particularly strong. Employment growth in the wholesale, retail and manufacturing industries was weaker. Labour market conditions are favourable across all states, and unemployment rates are generally close to the national average. 118 The Bank also noted, however, that surveys showed an: [I]ncrease in the proportion of firms having difficulty finding suitable labour, and employers note that this difficulty remains a key factor constraining their output. 119 The Joint Employers submitted there were significant risks to the unemployment and labour market outlook:

[106]

124 As we earlier noted, the Joint Employers contended that there are significant wage pressures building in the economy. 125 Whilst acknowledging a rising trend in the wage price index (4.2 per cent over the year to December 2005) Dr Hughes observed that the increase was still within the Reserve Bank's 4.5 per cent "line in the sand". This "line in the sand" was explained by Dr Hughes as follows: For over a decade the Reserve Bank of Australia has maintained the view that general wage movements beyond around 4.5 per cent a year are inconsistent with its conduct of monetary policy. The bank is charged by the Commonwealth government with maintaining overall CPI inflation within an annual range of 2 to 3 percent on average over the course of the business cycle. While a range of forces influence the general price level from time to time, the prime ongoing factor is unit labour costs (or "labour cost per unit of output). The bank's 4.5 per cent wages "line in the sand" is easily understood from unit labour cost arithmetic. Growth in unit labour costs is simply the difference between the pace of wage gains and the offset from labour productivity growth. With the trend in underlying, non-cyclical, labour productivity growth thought to be around 2 per cent a year a wage pace around 4.5 per cent would leave unit labour costs growth around the middle of the inflation target range. Any higher wage pace would push unit labour costs growth towards the high end and eventually beyond the target range and would require fortuitous developments in other price-forming influences to render wage fixing consistent with the Reserve Bank's obligations. As such a 4 per cent award rise, if granted, would be consistent with the bank's riding instructions from the Commonwealth government, leading to consumer price inflation around the low end of the target range unless offset by other, non-wage influences. The bank can be presumed to provide sufficient liquidity and other monetary support to accommodate inflation within its 2 to 3 per cent target range. Unions NSW claim is thus consistent with Reserve Bank macroeconomic control of the economy, and is in this sense an affordable claim. 126 Dr Hughes contended that the quarterly pattern of the wage price index did not suggest at this stage an ongoing rising tide of wage inflation. The witness stated: In fact the December overall quarterly increase (0.94 percent) was the lowest of the four corresponding results for 2005 (the others being 1.07, 1.05 and 1.04 percent in chronological order), with the same result obtained also in the private sector data. 127 Dr Hughes said a second reason for being cautious about any fear that wage inflation might occur was: [P]rovided by the industrial pattern of private sector outcomes. 12 of the 15 listed industries experienced faster wage rate gains over the course of 2005 than over the course of 2004. Only three (electricity, gas and water, construction and education) went backwards in terms of their rate increases, and all three had had stellar 2004 outcomes of nearly 5 percent or more. By contrast, of the 12 industries experiencing faster 2005 gains five (accommodation, transport and storage, communications services, property and business services, and personal and other services) merely went from gains in the 2 percent to the 3 percent range. Another three went from 2004 gains in the low 3 percent range to close to or just above 4 percent (retail trade, wholesale trade and manufacturing). Only the remaining four pushed to the higher end of the pack (mining from 3.81 in 2004 to 4.34 percent in 2005, health and community services from 3.6 to 4.7 percent, finance and insurance from 4.02 to 4.34 percent and culture and recreation from 3.31 to 4.57 percent). The industrial details look more like an evening up of the pack in the wage gain league than any new push upward. 128 We propose to say more about the impact of minimum wage adjustments on employment later in this decision. However, at this stage we note the evidence makes it clear the present trend in wages is not threatening the key indicators of growth and inflation, particularly in relation to wages for the low paid. Inflation 129 In the Budget Papers, Treasury forecast inflation to remain moderate, "despite a cyclical upturn in unit labour costs and further increases in fuel prices." The expectation was that the Consumer Price Index would increase by 2¾ per cent in 2006-07, lower than the increase for 2005-06. Inflation was forecast to be around 2½ per cent in the year to June 2006. 130 The Budget Papers also noted: The pressure on inflation from unit labour costs is expected to dissipate with a cyclical upswing in productivity, which now appears to be underway. In contrast, with oil prices trading at record levels, fuel prices are expected to be a significant contributor to inflation in the near term. Fuel prices are forecast to contribute around ¾ of a percentage point to inflation in the year to June quarter 2006. In 2006-07, with oil prices assumed to remain steady, fuel prices are expected to have less effect on inflation. Oil related increases in the price of some goods and services have already occurred (such as for airfares) but, to date, the indirect effects of higher oil prices on inflation have been mild. Nonetheless, with oil prices currently trading at record nominal levels, there is a risk of more widespread pass through of these costs to consumers. This has increased the likelihood of more significant second-round inflationary effects. The key risk to the outlook for inflation is the extent to which retailers can continue to absorb higher input costs into their profit margins. So far, the increased cost of labour, oil and raw materials has not resulted in any marked increase in retail consumer prices. Tradables inflation is forecast to remain low, with the downward trend in the price of some tradable items, such as motor vehicles and computing equipment, expected to continue. Non-tradables inflation is expected to continue to decelerate, reflecting robust retail competition and the recent softening in consumer spending. After a prolonged period of strong growth, house purchase prices (project homes) are forecast to slow, in line with the expected moderation in unit labour costs and modest falls in new dwelling investment. House purchase is the largest component of the CPI, representing around 8 per cent of the basket. 131 In considering the outlook for inflation the Reserve Bank, in its May 2006 Monetary Statement, expressed the following views: Headline CPI inflation rose to 3.0 per cent in the year to the March quarter, and underlying inflation is estimated to have increased to around 2¾ per cent after an extended period when it was close to 2½ per cent. This increase provides evidence that the modest pick-up in underlying inflation that has been forecast for some time is now starting to occur. The factors affecting the inflation forecast are broadly as discussed in previous Statements . With a tight labour market, an economy close to full capacity and rising commodity prices, there are a number of forces contributing to domestic inflation. At the same time, the prices of imported manufactured goods are holding down inflation. Furthermore, domestic wage outcomes have remained more contained than would have been expected in the past, given the tight labour market. And profit margins in a broad range of sectors appear quite healthy providing some scope for businesses to absorb cost pressures without the need to raise prices. The inflation forecast presented in the February Statement envisaged that underlying inflation would remain in the 2½-3 per cent range over the forecast period to end 2007, with a central forecast that underlying inflation would rise to 2¾ per cent in the second half of 2006 and stay around this level in 2007. The March quarter outcome, which was higher than expected, together with the recent run-up in commodity prices and other domestic and international data, suggested that the risks to the earlier forecast had shifted to the upside. However, taking into account the expected impact of the May policy tightening, the forecast for underlying inflation through 2007 is broadly unchanged. The Bank's revised forecasts are based on the assumption that oil prices and the tradeweighted index of the exchange rate remain broadly around current levels, at US$70 per barrel and 63, respectively. GDP growth is forecast to accelerate to an annual rate of 3-3½ per cent over the forecast period to the end of 2007, helped by stronger export growth. The unemployment rate is forecast to stay around its recent low level, and wage growth is likely to remain firm, but is not expected to accelerate further. Underlying inflation should remain in the 2½-3 per cent range. Headline CPI inflation is likely to be above 3 per cent in the near term, affected by higher petrol prices, but also reflecting some effect from Cyclone Larry on fruit and vegetable prices. In due course, CPI inflation would be expected to decline gradually, back to 2½-3 per cent. However, for the realisation of this forecast, it will be important that inflation expectations remain anchored through a period when higher petrol prices are likely to substantially boost headline CPI inflation. 132 It is sufficient to observe that against the background of a forecast increase in the wage price index of 4 per cent in 2006-07, the inflation forecast is for moderate rises and within the Reserve Bank's target range of 2 - 3 per cent. This is despite a tight labour market, an economy close to full capacity and rising commodity prices. A fair and reasonable increase in minimum award wages does not, in our view, pose an inflationary threat but on the other hand, it will assist the low paid. Productivity 133 On productivity, Dr Hughes' evidence was that: Wage increases place pressure on price inflation only to the extent that the rise exceeds the offset from labour productivity growth. One of the beneficial features of the Australian economy over the 1990s was a revival of productivity growth after a dismal performance in the previous one and a half decades. It would be common ground amongst economists that the revival has been a factor assisting containment of inflation over the period. But now there are fears that the underlying strength of productivity growth is on the wane with adverse consequences for inflation control as well as growth in living standards. It is next to impossible to detect economy-wide changes in productivity growth trends as they happen. Productivity growth is strongly cyclical about its underlying trend, a complication that is added to by the volatile (or "noisy") behaviour of individual quarterly outcomes. Volatility is partly due to productivity being calculated as a residual measure subject to measurement errors in both its component parts of output and labour input (aggregate hours). … [T]he current recorded annual growth rate (of the "market sector" to December 2005) is a respectable 1.9 percent, more than all of which occurred in the December quarter [2005]. A further consideration is that any deterioration in the underlying productivity trends should have consequences elsewhere, especially in an inflation outcome on the high side of expectations formed by an assumption of ongoing constancy of the underlying productivity trajectory. In fact the recent CPI was lower than expected, causing, as noted earlier, the Reserve Bank amongst others to lower their inflation expectations. At this stage the only verdict that can be given on charges of a diminished productivity trend is the Scottish judgement of "not proven", pending further evidence we might add. 134 The Joint Employers submitted that productivity remains low after falling in the first half of 2005. Further, that the low productivity figures indicated labour costs are increasing since wages have accelerated at a greater rate than has productivity. It was submitted businesses are able to afford wage rises if productivity increases; so low productivity can make even small pay increases unaffordable. 135 However, these submissions must be seen in the light of the evidence of Dr Hughes, which contradicted assertions as to adverse productivity conditions upon the basis that they were "not proven".

[118]

Explanations of the decline this decade in the New South Wales share are not hard to find. Firstly, the base at the start of the decade was unsustainably high due to spending associated with staging of the September 2000 Olympic games. Secondly, the state's industrial structure has not suited the recent turn in the demand wheel as much as some others. Notwithstanding the importance of coalmining and other minerals activity to various parts of the state, New South Wales has a disproportionately low share of national mining activity, by income to only about 37 percent of the national average. It has not benefited directly as much as the average from the present resources boom. Moreover, the indirect effects have been diluted by an offsetting impact of commodity-currency-induced rises in the dollar on the competitiveness of the manufacturing, tourism and education industries where the state has an average or above-average share. Thirdly, housing affordability constraints appear to have hit harder in the Sydney region, the most expensive part of the nation, than elsewhere. The downturn occurred earlier and has been sharper than elsewhere... Housing construction is especially important to local incomes since higher-than-average shares of components (bricks, tiles, concrete, glass, etc.) are sourced locally. No doubt there are other influences, but these appear to be the main three. 142 In his evidence regarding the New South Wales economy, Dr Hughes also stated: · Private consumer spending has under-performed its national counterpart lately. As noted earlier the national spending boom reached unsustainable heights in early 2004 and is now back to more realistic levels. The New South Wales equivalent never reached these heights, so that the generally more subdued recent conditions represent less of a change for local retailers than their interstate counterparts. · Business investment in the state has been very strong, stronger indeed than the nation until the very last quarter of 2005. In annual average terms real business investment was up 16.2 percent in 2005 following very similar growth (16.4 percent) in 2004. In what is a volatile series due in part to the lumpy nature of investment growth NSW business investment rose 7.4 percent over the latest four quarters to December 2005. · Global and Australian activity outlooks for the year ahead look encouraging, setting a favourable backdrop for state growth. But as always there are risks attaching to the outlook. One of these is an exchange rate that has had a negative impact on the state's manufacturing and services base in recent years. At the time of writing (March 2006) the dollar was well off its earlier peak levels. If these lower exchange rates were to be sustained, and especially if the currency were to move lower still, New South Wales' growth prospects would improve materially. · Little difference exists between the inflation record of Sydney and the eight capitals as a whole. Despite appearances to the contrary produced by the narrower range of the scales, this relative similarity extends to wage movements. · The consensus outlook for both the global and national economies is encouraging with predictions of further firm growth accompanied by modest inflation. With this backdrop New South Wales should continue to see employment grow. 143 Peter Horn, Director Fiscal Strategy with the New South Wales Treasury, provided an uncontested Statement regarding the State's recent economic performance and the outlook for 2006-07. Mr Horn referred to the table reproduced below, which presents the Budget forecasts for the NSW economy in 2006-07:

[122]

· World capacity constraints, which are increasing global vulnerability to supply shocks, and adding to the risk of higher than forecast inflation and interest rates. · Further RBA rate rises that would severely impact households and the economy. · Growing world payments imbalances that are contributing to protectionism, and increasing the risk of global financial disruptions and economic downturn. · Higher and more volatile oil prices, feeding inflation and disrupting activity. Budget estimates are framed on the basis of no change in government policy and other parameters. Factors which might affect Budget outcomes include need for drought relief, public sector wage and work value claims, realisation of contingent liabilities, and change to Commonwealth policy on intergovernmental financial arrangements. 147 In relation to a number of the more significant indicators, Budget Paper No. 2 provided the following commentary: Consumer spending growth slowed for a second year in 2005-06. This reflected falling dwelling construction (which reduced demand for household goods), declining house prices and the rising cost of petrol (which constrained budgets). These factors appeared to outweigh household gains from higher wages and employment, booming equities, lower taxes and higher real purchasing power after adjustment for the terms of trade. Retail sales trends through March 2006 suggest that the pace of consumption growth may have regained some momentum as the year progressed. Dwelling construction continued to decline through 2005-06, gradually dissipating the remnants of the dwelling bubble that had formed in the early 2000s. While trends in first homeowner loan approvals and general housing finance to early 2006 are encouraging, dwelling approvals are trending lower (usually the most dependable short-run leading indicator). The Reserve Bank of Australia's (RBA) interest rate increase on 3 May 2006 has cast a further shadow of uncertainty over dwelling sector trends. Business investment continued to strengthen in 2005-06 from an already solid base, buoyed by strong profits, high capacity utilisation and robust global economic conditions. Trends for components suggested a slight refocus away from plant and equipment toward construction. The share of business investment in state final demand averaged a record high 13 per cent during the four quarters to December 2005 - double the ratio a decade earlier. Strong business investment limited the impact on 2005-06 state final demand growth from slower consumption growth and declining dwelling investment. State final demand is estimated to have increased by 2½ per cent in 2005-06 compared to 3½ per cent in the previous year. As a major gateway for national imports, but a comparatively modest supplier of national exports, New South Wales usually records a net deficit on overseas trade . In 2005-06 NSW manufactured and service exports were weighed down by the higher exchange rate, while imports were boosted by the strength of business investment. As a result, overseas trade (plus interstate trade, inventory and other balancing items) detracted around ¾ of a percentage point from gross state product , which is estimated to have increased by about 1¾ per cent in 2005-06. The labour market made further gains, with NSW employment growth increasing to 1½ per cent and the unemployment rate remaining steady at 5¼ per cent [the unemployment rate in New South Wales for May 2006 fell by 0.5 per cent to 5.1 per cent in seasonally adjusted terms]. In year average terms, employment growth to the March quarter 2006 was strongest in communication services, finance and insurance, cultural and recreational services, and property and business services. Inflationary pressures edged higher in 2005-06 in response to rising world commodity prices (particularly oil) and solid domestic economic conditions. Growth in the consumer price index moved to the top of the RBA's 2 to 3 per cent target range.

[123]

Wage pressures increased somewhat during 2005-06 in response to skilled labour shortages in faster-growing sectors and to arbitrated public sector wage decisions. Annual average wage growth in New South Wales increased from 3.5 per cent in March 2005 to 4.1 per cent in March 2006. Wage growth averaged 5.2 per cent in the public sector and 3.7 per cent in the private sector in the year to March 2006. Monetary policy remained on hold from 2 March 2005 until 3 May 2006 when the cash rate was increased from 5½ to 5¾ per cent. In announcing the rate increase the RBA commented that pressures from above-average world growth, solid domestic spending and a pick-up in household credit growth had added to inflationary pressures in an economy with limited capacity and low unemployment; and that inflationary risks had increased sufficiently to warrant an increase in the cash rate. 148 As we earlier indicated, those opposing the applicant's claim did not take any real issue with the various assessments of the state of the New South Wales economy except to submit it was lagging States such as Queensland and Western Australia, and the national economy, in its economic performance. As Dr Hughes stated, however, there was nothing intrinsically disturbing about this; it has been the case for a number of years and in those years employers in New South Wales have generally accepted it has been appropriate to flow on safety net adjustments granted by the AIRC following its consideration of the national economy. 149 The economic fundamentals of the New South Wales economy are, as Unions NSW submitted, "strong and positive" and whilst it should be accepted that the State's economy is a paler reflection of the national economy, no party has taken issue with the proposition that a moderate increase is sustainable. It is simply that the employers have contended the amount of that increase should be determined by the AFPC and not this Full Bench, notwithstanding the legislative imperative under which we are required to act. 150 We would observe that the New South Wales Budget Statement deals frankly with the risks to the Treasury's economic outlook. The relative vulnerability to competitive pressures of the manufacturing sector in New South Wales, together with the implications for households and dwelling construction of further interest rate rises, are particular considerations that need to be factored in to any decision in these proceedings. LOW PAID WORKERS

[131]

Source: Unpublished data ABS Household Expenditure Survey 2003-04 159 It was submitted by Unions NSW that the foregoing table provided evidence that expenditure of low paid, low-income households was focussed on necessities. The evidence of Mr Burns and Ms Doan, it was submitted, supported this. Whilst the Statements of Mr Burns and Ms Doan could not be correlated directly with the ABS data our general impression was that expenditure on necessities consumed the major portion of the respective incomes. 160 Further analyses undertaken by Unions NSW produced the following propositions: · The largest expenditure item for first quintile households, comprising 20.7 per cent of total goods and services expenditure is housing. The cost of housing, as measured by the Sydney CPI has increased at a faster rate than the CPI since the June quarter 2004, and over the last twelve months. While the Sydney CPI has increased by 3.8 per cent since June Quarter 2004, and by 2.5 per cent over the last twelve months, the cost of housing has increased by 5.5 per cent and 3.0 per cent, respectively. · The second largest component of first quintile household's expenditure on goods and services is expenditure on Food, comprising 16.5 per cent of total expenditure. The cost of food has increased at a faster rate than the Sydney CPI over the last twelve months, and since June quarter 2004. While the Sydney CPI has increased by 3.8 per cent since June Quarter 2004, and by 2.5 per cent over the last twelve months, the cost of food has increased by 4.7 per cent and 3.7 per cent, respectively. · The third largest expenditure item for first quintile households, comprising 15.1 per cent of total goods and services expenditure is transportation. The cost of transportation over those periods also has increased at a faster rate than Sydney CPI. Again Sydney CPI increases of 3.8 per cent and 2.5 per cent compare with transportation increases of 5.8 per cent and 3.2 per cent. Together housing, food and transportation comprise 52.3 per cent of first quintile average expenditure per week. Areas of highest expenditure for the low-income wage households reflect expenditure groups for which costs have increased at rates higher than the Sydney CPI rate. 161 The Minister for Industrial Relations undertook similar analyses of household income and expenditure. In addition, it was submitted: · In New South Wales the mean net household worth of the lowest household quintile is $24,681. Of this quintile, 94.2 per cent are renters: Australian Bureau of Statistics 2006, Household Expenditure Survey, cat. no. 6530.0, ABS, Canberra. The most disadvantaged households are households with people in the bottom income quintile with no housing equity.

[132]

· In 2002, just over half of the households in the lowest quintile reported that they could not, in an emergency, raise $2,000 in a week, compared to 15 per cent of all Australian households who could not. Non-homeowners in the bottom income bracket were much more likely to have been unable to pay a household bill on time and to have had to pawn or sell an item to raise money: Australian Bureau of Statistics 2004, Australian Social Trends, cat. no. 4102.0, ABS, Canberra. Raising the minimum wage helps to ameliorate the pressures low income earners face when meeting the costs of their utility bills. 162 In its submissions, CCER stated: CCER submits that a living wage should be sufficient to support a worker and his or her family without experiencing financial distress. Some indicators of financial distress include being unable to afford to take holidays, unable to pay bills on time, going without meals and being unable to afford new clothing: Buchanan, J., 2006 'Low Paid Project: A brief statistical profile', Workplace Research Centre, University of Sydney. Many award dependent workers and their families currently struggle to make ends meet. Research from the Centre for Work and Life, University of South Australia and the Centre for Applied Social Research, RMIT published in 2006 provides insight into the real-life experiences of workers on low pay. " These experiences reveal that low pay costs them a great deal: in gnawing worry, persistent anxiety about bills, ill-health, concern for their children and denial of participation in the kinds of activities that many Australians take for granted: sport, visiting friends, training, job search, the prospect of secure housing and hope for retirement without poverty. For these workers, low pay narrows and constricts their social circles, restricts travel, and affects children's access to school excursions and basic health - including dental - services. Working poverty is associated with the deferral of family formation and relationship tensions around money in some households ". (Masterman-Smith, H., May, R., and Pocock, B., 2006 " Living Low Paid: Some Experiences of Australian Childcare Workers and Cleaners ", Centre for Work and Life, University of South Australia and the Centre for Applied Social Research, RMIT).

[133]

163 In the 2005 Safety Net Adjustment Review the AIRC considered an extensive amount of material relating to the needs of the low paid. The Australian Commission observed at [359]: [I]t is generally acknowledged that many low-paid employees experience difficulties in making ends meet and are unable to afford what are regarded as necessities by the broader Australian community. Many live week-to-week and struggle to make ends meet. 164 The evidence in these proceedings only serves to reinforce that observation of the AIRC. And in relation to the importance of maintaining an appropriate award safety net the Australian Commission further observed at [413]: We turn now to some of the research into the needs of the low paid. As we indicated earlier, we agree with the Commonwealth that HILDA and NATSEM research indicates that less than a quarter of low-paid employees are in the lowest quintile of household incomes. While this research suggests that there is a less than perfect correlation between low pay and needs, it cannot be assumed that low-paid employees who are not in low-income households are therefore not in need. No party submitted that only those low-paid employees who are in low-income households have unmet needs. We also agree with the Commonwealth that the research shows that the proportion of full-time workers in poverty who are adult award-reliant employees is likely to be very small, perhaps insignificant, and that only 2 per cent of those whose main source of income is wages and salaries are in poverty. While it is clear that low-paid employees who are not in poverty may nevertheless have needs which we should take into account, the research tends to indicate that the safety net is, by and large, an effective one so far as the low paid are concerned. On the limited data available , it might be concluded that without the adjustments of recent years the number of full-time award-reliant employees in poverty would be significantly greater (our emphasis) . Wage dispersion and income inequality 165 The Minister for Industrial Relations submitted that although the award system and annual safety net adjustments have moderated the wage inequality which has grown as a result of fragmentation and decentralisation in the bargaining system (Briggs, C 2005, Federal IR Reform: The Shape of Things to Come, ACIRRT, University of Sydney, p 71) the minimum wage compared with median earnings and Average Weekly Ordinary Time Earnings (AWOTE) for full-time employees has steadily declined. This it was submitted, was reflected in the following two tables (Tables 8 and 9):

[136]

168 It was further submitted that the incidence of low pay for wage earners increased from 14 per cent of the labour force in the mid-1990s to 20 per cent in 2003. This, it was contended, represents an additional 600,000 Australians earning around $14 an hour, or less than $28,000 a year: Masterman-Smith, H, May, R, and Pocock, B 2006, Living Low Paid: Some Experiences of Australian Childcare Workers and Cleaners, p. 13 (From a project funded by the Australian Research Council and the Brotherhood of St Laurence, Liquor Hospitality and Miscellaneous Workers Union (LHMU), SA Unions, Unions NSW and the Victorian Trades Hall Council). 169 We should reiterate that none of the material going to wage inequality was challenged by the employers. Nevertheless, given the material was not tested in the usual way we will proceed to treat it cautiously. However, it is plainly the fact that there is a growing wages disparity, even with the benefit of regular adjustments to the safety net. In the absence of such adjustments it could only be expected the gap would widen. Characteristics of low paid employment 170 The Minister for Industrial Relations cited a number of characteristics of low paid employment. In particular, we note the following: (1) Low paid employment is concentrated in the hospitality, retail and service based industries. These same industries also have the highest proportions of award-reliant employees: Buchanan, J 2006, Low paid employment- a brief statistical profile, Overheads prepared for press conference on LHMU- Uni of South Aust- ARC, Project on low paid service sector employment, Workplace Research Centre, University of Sydney. (2) More than half of workers earning less than $500 a week rely on awards, as do a third of those who earn between $500 and $700 per week: Buchanan, J 2006, Low paid employment- a brief statistical profile, Overheads prepared for press conference on LHMU- Uni of South Aust- ARC, Project on low paid service sector employment, Workplace Research Centre, University of Sydney. (3) Awards are the primary source of determining pay for 24 per cent of all female employees: Submission to the Inquiry of the Senate Employment, Workplace Relations and Education Committee into the Workplace Relations Amendment (Work Choices) Bill 2005 on behalf of the Governments of New South Wales, Queensland, Western Australia, South Australia, Tasmania, The Australian Capital Territory, The Northern Territory, 9 November 2005, p. 56. And by occupation, industry, and employment status, women are most likely to be concentrated in jobs affected by minimum wage regulation: Rubery, J, Grimshaw, D and Figueiredo, H 2002, 'The Gender Pay Gap and Gender Mainstreaming Pay Policy', presented at the European Work and Employment Research Centre, UMIST, Manchester, cited in Research Evidence About the Effects of the 'Work Choices' Bill A Submission to the Inquiry into the Workplace Relations Amendment (Work Choices) Bill 2005, authored by A Group of One Hundred and Fifty Australian Industrial Relations, Labour Market, and Legal Academics, November 2005, p. 33. 171 It is the retail trade, hospitality and service based sectors that the employers in these proceedings have contended have the least capacity to pay. It is these sectors where, the Minister for Industrial Relations contends, the low paid are concentrated. We will address these industry sectors in more detail later in this decision.

[137]

Issues faced by low paid workers 172 The Minister for Industrial Relations submitted that the State's minimum wage decision would be made against a background of changes in the welfare system. It was submitted: Commonwealth Welfare to Work policies target people with disabilities, single parents, the long-term unemployed and the mature aged jobless, obliging them to take up part-time work. With little or no bargaining power, the risk of losing pension benefits will force these groups into work with potentially sub-standard conditions, reducing their capacity to manage their illnesses or caring responsibilities. Welfare and industrial relations reforms will forcibly generate a labour supply for low pay jobs which undercut existing wage and employment standards: Briggs, C 2005, Federal IR Reform: The Shape of Things to Come, acirrt, University of Sydney, p.76. Raising the minimum wage for unincorporated businesses will create a barrier against these effects. The groups targeted by these changes will not find it easy to secure employment. Around 60 per cent of people with a disability and jobless single parents have ten or less years of schooling. Further, many pension recipients live in regional areas where rent is cheaper, but there are fewer jobs: Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 13. Single parents receiving Parenting Payments required to find and participate in part-time work or take up study under the Welfare to Work proposals, will suffer a loss of income: Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 18. Additionally, single parents who take up full-time study will lose their Pensioner Concession Cards, Pharmaceutical Allowance, and Telephone Allowance: Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 16. By raising the minimum wage, these workers will be better able to meet their additional costs as a result of their changed labour market status. 173 In the absence of a contradictor, we are necessarily cautious about accepting the Minister's submissions regarding the Commonwealth Welfare to Work policies at face value. But the issues raised are of significance and should be taken into account.

[138]

The needs of vulnerable workers 174 The Minister for Industrial Relations identified those workers most likely to be low paid as females, indigenous, migrant, young, non-unionised workers, those employed in small firms, and workers with a disability: Human Rights and Equal Opportunity Commission, Submission to the Inquiry of the Senate Employment, Workplace Relations and Education Legislation Committee into the Workplace Relations Amendment (Work Choices) Bill 2005, p 43. 175 It was also submitted by the Minister that by occupation, elementary clerical, sales and service workers are the most highly casualised, where 56.2 per cent of workers have no leave benefits. Adequate minimum wages, it was submitted, are critical in maintaining a decent standard of living for the increasing number of part-time and casual employees. Further, that: The gender differential in labour force participation rates emerges early; students and prime-age women returning to work are potential substitutes in the part-time workforce, and are potentially in competition with each other for marginal jobs, typically located in female dominated industries: Hakim, C 1998, Social change and innovation in the labour market, Oxford University Press: New York, p.174. The gendered dimension of low paid employment exemplifies the importance of redressing wage dispersion through moderate, consistent minimum wage adjustments. Many forms of non-standard employment lead to low pay and women are most likely to be employed in these forms: Buchanan, J and Watson, I 1997, A Profile of Low Wage Employees , acirrt, University of Sydney, pp. 10-11. Of all women employed in New South Wales, 43.6 per cent were employed on a part-time basis and women occupy over 70 per cent of part time positions: Australian Bureau of Statistics, 2005, Australian Social Trends, cat. no. 4102.0, ABS, Canberra. In May 2005 Australian women's labour force participation rate was 57.1 per cent; lower than most OECD countries, but the proportion working in non standard forms of employment was higher than many others in the OECD: Organisation for Economic Co-operation and Development, Economics Department, Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries , May 2004. Casual and part-time forms of employment are often associated with low pay. There is a widening diversity in the social groups taking up part-time and casual jobs. While part-time or casual work may be a preference for some full-time students and women balancing paid work and family responsibilities, the evidence shows that a significant number of non full-time workers do seek additional hours and are underemployed. In New South Wales at July 2005, 26.8 per cent of part-time workers sought full-time jobs: Australian Bureau of Statistics 2005, Australian Social Trends, cat. no. 4102.0, ABS, Canberra. Women are more likely than men to trade off wages against conditions which help them meet their disproportionate caring, family and household responsibilities. These trade-offs have obvious implications not only for gendered wage dispersion, but they also inform women's fertility decisions and affect their economic security, especially in single parent households: Human Rights and Equal Opportunity Commission, Submission to the Inquiry of the Senate Employment, Workplace Relations and Education Legislation Committee into the Workplace Relations Amendment (Work Choices) Bill 2005, p. 29.

[139]

176 The Minister for Industrial Relations drew attention to an analysis by ACIRRT of a random sample of 500 Australian Workplace Agreements (AWAs) in 2004, looking at the inclusion of family friendly provisions including paid maternity leave. It was submitted that: The statistics show that the percentage of sample AWAs which contained paid maternity leave was only 8 per cent in 2002/2003 and just 2 per cent in 2004. This compares unfavourably with statistics provided by the Department of Employment and Workplace Relations (DEWR) from the December 2005 quarter where it was shown over 46 per cent of federal certified agreements contained paid maternity leave provisions. … The increasing growth in non-standard forms of employment is often a method whereby employers are accessing 'permanent' employment yet avoiding the obligations and conditions normally associated with such employment arrangements. In a working environment without annual leave, sick leave and many other entitlements regular adjustments to hourly rates of pay under state awards are the only compensation for such employees. These employees should not be denied moderate award wage increases because of their employment status. Low paid jobs will likely increase in the federal system under Work Choices as award-dependant employees with low bargaining power are transferred to, or new employees are offered, AWAs or non-union collective agreements or contractor status: Briggs, C 2005, Federal IR Reform - the Shape of Things to Come, commissioned by Unions NSW cited in Watts, M and Mitchell, W 2006, Wages and Wages determination in Australia 2005, Working Paper No. 06-01, Centre for Full Employment and Equity, University of Newcastle, Callaghan NSW, p.16. The New South Wales Government submits these outcomes are undesirable in the New South Wales system. 177 We do not consider there can be much doubt that with the removal of the no disadvantage test in relation to AWAs and other changes relating to awards and individual agreements under the Workplace Relations Act, there is the heightened potential for a downward shift in wages and employment conditions in the federal sphere. But that is not the case in the New South Wales jurisdiction where the 'no net detriment' test applies to enterprise agreements (s 35(1)(b)) and where the legislative requirement is that awards must set fair and reasonable conditions of employment for employees (s 10). 178 The Minister noted that young and inexperienced workers were highly concentrated in the retail trade and accommodation and cafe and restaurant industries: Australian Bureau of Statistics, Employee Earnings and Hours, Australia, Preliminary, cat. no. 6305.0.55.001; Labour Force, Australia, Detailed - Electronic Delivery January 2006, cat. no. 6291.0.55.001; Australian Social Trends, 2005, cat. no. 4102.0, ABS, Canberra. It was submitted young people were most likely to be casual and reliant on awards and minimum wage increases. It was further, submitted young workers generally fall outside of the bargaining stream and were less likely to hold the bargaining power to achieve above award pay and conditions, or conditions which assist them to balance their other responsibilities such as study. 179 In respect of Australia's indigenous people it was submitted they are highly concentrated in low skilled work; 25 per cent of jobs held by indigenous people are unskilled compared to 9 per cent across the population. 180 Migrant workers, it was submitted, particularly outworkers, were also over-represented in sectors with low pay and limited security. The Minister submitted many migrant workers were employed in non-unionised workplaces and were consequently deprived of opportunities to secure improved working conditions through enterprise bargaining. 181 The Minister also submitted the WorkChoices legislation was complemented by tighter welfare reforms that will increase pressure on workers to accept poorly paid jobs rather than risk loss of benefits. As of October 2005, people with disabilities had a high relative unemployment rate of 16.3 per cent: Watts, M and Mitchell, W, 2006, Wages and Wages determination in Australia 2005, Working Paper No. 06-01, Centre for Full Employment and Equity, University of Newcastle, Callaghan NSW, p. 15. It was submitted that a combination of tougher welfare measures interacting with industrial legislation that explicitly undermined award wages and conditions would create a ready labour supply for low paid jobs. 182 It was further submitted in relation to persons with a disability: New recipients of income support from July 2006, will receive between $29 and $166 per week less than existing recipients. Differences in the indexation of pensions and allowances mean these reductions will increase over time. The potential losses in disposable income for single adults with a disability obliged to look for and undertake work NATSEM estimates that workers who move onto the Newstart Allowance or Austudy Payment from the pension will be financially worse off unless they can find full-time work with gross income of at least $700 per week: Harding, A et al 2005, The Distributional Impact of the Proposed Welfare-to-Work Reforms Upon Sole Parents , Report to the National Foundation for Australian Women, 25 August 2005; Harding, A et al 2005, The Distributional Impact of the Proposed Welfare-to-Work Reforms Upon Australians With Disabilities, National Centre for Social and Economic Modelling, University of Canberra, cited in Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 19. Under the proposed Welfare to Work provisions, single adults with disabilities will lose up to $122 a week in 2006-07. Those same adults with no private income apart from their social security payment will receive $46 a week less under the new system, representing around a fifth of total income. The take-home incomes of people with disabilities and private incomes of $145-405 a week will fall by at least a quarter: Disabled lose up to $122 pw in welfare to work reforms, Media Release, 13 September 2005, National Centre for Social and Economic Modelling, University of Canberra, cited in What Women Want Consortium Submission to Senate Employment, Workplace Relations and Education Legislation Committee Inquiry into the Workplace Relations Amendment (Work Choices) Bill 2005. In New South Wales, over 23,000 people with a disability will be worse off financially under the Welfare to Work scheme: Based on 'official' estimates of the numbers of people affected by the original policy announced in the 2005 Budget, from answers to Senate Estimates questions in August 2005 cited in Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 33. The people worst affected will be those who attempt to improve their financial situation by undertaking part-time work given the high marginal tax rates imposed on Newstart recipients, and those who take up full-time study who will lose their Pensioner Concession Cards, Pensioner Education Supplement and possibly also Rent Assistance: Australian Council of Social Service, Submission to the Senate Community Affairs Committee Inquiry into The Employment and Workplace Relations (Welfare to Work) Bill 2005, November 2005, p. 18. Positive adjustment to the minimum wage will go some way to redressing this. 183 Whether or not the Minister's criticism of the Commonwealth's welfare to work programs is soundly based, we are in no position to determine in the absence of a contradictor. We do, however, accept that there are vulnerable workers, including the disabled, females, young people, migrants and our indigenous people. We also accept the need for an appropriate safety net in the form of a fair and reasonable minimum award wage to ensure the adequate protection of the living standards of those vulnerable members of the workforce. The Minister for Industrial Relations' submissions and the statistical data that has been provided regarding vulnerable workers, have served to sharpen our perspective on the importance of an award safety net wage. UNINCORPORATED EMPLOYERS

[140]

184 The main impact of any decision we might make increasing minimum award wages would be, at least in the immediate term, on employers in New South Wales that are unincorporated and who employ employees under State awards. Employers First contended that: This is a Case about awarding increases to a very small minority of the NSW workforce. Whether an employer has to pay a wage increase will turn solely on their legal status (ie. not being constitutional corporations) and the industrial jurisdiction (ie. State) which covers them. If successful, the Unions NSW application would compel such employers to pay higher wage rates than those paid by the vast majority of employers in this State which are constitutional corporations. 185 This contention was in support of the main submission by Employers First that, in the interests of comity, this Commission should not increase wages ahead of the AFPC. However, some of the evidence relied upon by Employers First in support of its submission to delay, appeared to be that unincorporated employers, at least in some industry sectors, did not have the capacity to pay any wage increase at all, regardless of the timing. For instance, it was Ms Owen's evidence in relation to small unincorporated businesses in the retail sector that: These small shopkeepers pay Award rates and over award payments are rare. The small shopkeepers are very cost sensitive and cannot afford any cost increases. 186 Later in her evidence, however, Ms Owen was less dogmatic and stated that "They [small shopkeepers] will be hard hit by increases in Award rates that their competitors do not have to pay", which was consistent with Mr McDonald's submission that if the unincorporated businesses were required to pay increases ahead of their large competitors, most of whom were covered by federal awards, those businesses would be put at a competitive disadvantage. 187 Mr Gillan's evidence was to the effect that a 4 per cent increase in minimum award wages would be economically detrimental to unincorporated businesses under State awards in the hospitality industry.

[152]

194 In relation to the hospitality industry, Mr Gillan's evidence was: (1) According to the Australian Bureau of Statistics, Employee Earnings and Hours (EEH) survey (Cat No 6306.0) ("EHH Survey"): (a) Of all the accommodation, café and restaurant industry employees in NSW in May 2004, 69.1 per cent were employed in incorporated businesses and 30.9 per cent were employed in unincorporated businesses. (b) The highest concentration of award-reliant employees is found in the accommodation, café and restaurant industry. 70.5 per cent of employees are award-reliant. (c) The proportion of NSW award reliant workers who were employed in incorporated businesses in May 2004 was 69.4 per cent and in unincorporated businesses it was 30.6 per cent. 195 Consequently, Mr Gillan deposed that a 4 per cent increase in award wages for employees in the New South Wales jurisdiction would result in the employers being subject to a competitive disadvantage relative to similar businesses in the national system. 196 Relying on relevant statistics, Mr Gillan also stated that: (1) A feature of the NSW restaurant industry in particular is the prevalence of restaurants operating out of hotel or accommodation establishments, and thereby being subject to federal awards like the Hospitality Industry & Accommodation, Hotels, Resorts & Gaming Award 1998 and the Motels, Accommodation & Resorts Award 1998. Those restaurants compete with, and currently enjoy many advantages over, restaurants operating in a stand-alone fashion. As a result of their federal award respondency their competitive edge is set to increase if the NSWIRC grant the Unions NSW application, and consequently stand alone restaurants will be disadvantaged even further. (2) The majority (63.4 per cent) of businesses in café and restaurant services employed less than 10 persons. Given their small size, then it follows that the vast majority of businesses in the NSW restaurant and catering industry are highly vulnerable to any minimum wage adjustment which causes disparate wage outcomes. (3) Over the financial year ending 30 June 2004, labour costs were the second highest expense item for café & restaurant businesses at 35.7 per cent, following purchases at 39 per cent of all costs. For catering businesses, labour costs were the highest expense at 42.6 per cent of all costs. (4) Income for café & restaurant businesses grew at 7.1 per cent per annum since 1998-99, however expenses grew at a higher rate of 7.4 per cent per annum. Labour costs had the highest growth rate of all selected expenses rising by 10.5 per cent per annum between 1999 & 2004 (5) The accommodation, café and restaurant industry had the largest exit rate in both financial years 2002-03 and 2003-04, accounting for 7.9 per cent of all exits. (6) The accommodation, café and restaurant industry had one of the lowest first year survival rates in the financial year 2003/04 of 88.3 per cent. (7) The accommodation, café and restaurant industry had one of the lowest second year survival rates in the financial year 2003/04 of 80.7 per cent. 197 Employers First made a general submission, but particularly in relation to the retail and hospitality sectors, that in having to pay a wage increase before their competitors in the federal system, unincorporated employers subject to State award coverage in New South Wales would be placed at a competitive disadvantage. That is to say, if unincorporated employers were required to pay an increase some four months before the obligation arose for employers in the federal system (assuming the AFPC determination was made by November 2006), it would be an unfair impost on employers who remain under New South Wales awards. We do not consider there is much substance to this submission. Wage movements in federal and New South Wales awards, even in the same industry, have rarely moved in lockstep with each other. Moreover, the timing of increases under enterprise agreements, made by employers against whom unincorporated employers under New South Wales awards would be competing, would in any one year precede award based movements and in other years, follow them. 198 We note Mr Dwyer's evidence that employees under the Shop Employees' (State) Award are paid less than employees of large retailers under federal agreements: The base wage under the NSW Shop Employees' (State) Award for a full-time adult shop assistant is currently $542.80 per week for a 38 hour week. By comparison the base wage for a Service Assistant under the Coles Supermarkets Australia Pty Ltd Retail Agreement 2005 is currently $602.20 per week and the base wage for a Retail Employee Grade 2 under the Woolworths Supermarkets NSW / ACT Agreement 2004 is $600.37. 199 Mr Dwyer also provided a chart that showed a comparison of the base wage movements for employees engaged under the terms of the Shop Employees' (State) Award as compared to employees working in Woolworths Supermarkets and Coles Supermarkets under agreements since March 1996. The rates payable to employees under the State Award were consistently below those provided for employees of the large retailers and the gap widened over the period 1996 to 2006. 200 Also provided by Mr Dwyer was a selection of wage increase schedules payable for a number of large and medium sized retailers. The schedules showed that the majority of retailers involved in enterprise agreement negotiations with the Mr Dwyer's Union over the last two years had entered into certified agreements that provide wage increases equal to or in excess of State Wage Case decision adjustments. 201 We consider that where any unfairness would lie would not be so much with the employers but if this Full Bench were to delay any decision until after the AFPC made its decision, it could be 2007 before workers in New South Wales received any increase. As we noted in our earlier interlocutory decision in March 2006, this could mean low paid workers in New South Wales would be waiting up to two years for any adjustment to their minimum award wage. 202 Ms Owen stated in her evidence that unincorporated small shopkeepers under New South Wales awards "will be hard hit by increases in Award rates that their competitors do not have to pay." This appears to assume that no increase will emerge from the AFPC's deliberations and that competitors will not negotiate wage increases in their enterprise bargaining. Such speculation does not provide a proper basis for declining to increase minimum award wages for low paid workers. 203 What Ms Owen's proposition amounts to, putting aside the question of increases arising from enterprise bargaining, is that this Commission should not increase minimum award wages unless and until the AFPC increases wages under the relevant federal instrument because retailers under New South Wales will be disadvantaged. Thus, the determinant for fixing wages under New South Wales becomes the AFPC and not the terms of Industrial Relations Act. The effect of the proposition only has to be stated for its unacceptability to be realised. The proposition is directly contrary to the statute, which is binding on the Commission (we will deal further with the question of survival and exit rates when dealing specifically with employment effects).

[153]

204 A further objection to a 4 per cent adjustment to award wages in the retail and hospitality sectors was that the cost of meeting the claim was likely to have an adverse effect on the survival of small businesses. The essence of the contention was that the businesses concerned were very small, employing in many cases only one employee, and they were particularly susceptible to cost increases. It was submitted by Mr McDonald: [G]iven that a small minority of employment in the State is in the non-farm sector of employers which are non-constitutional corporations it is not surprising that the cost of the increase in terms of the whole economy would not be large. However, it is really of no consequence to such an employer that the increase it has to pay constitutes a relatively small cost to the economy as a whole. For that employer the cost is significant and, to exacerbate the problem, it is not a cost borne by that employer's competitors who are probably larger and more resilient. 205 According to Unions NSW, the net impact of the 4 per cent claim for award-based workers in the unincorporated private sector on total Ordinary Time Earnings in NSW is 0.06 per cent. Further, the impact on the wages share of total factor income measured through the Consumer Price Index is 0.03 per cent. According to the evidence, the bulk of the employees affected are employed in the retail and hospitality sector. The net impact of the claim on the retail and hospitality sector, and indeed those employers who remain bound by State awards, may properly be regarded as very small. 206 Whilst Mr McDonald contended that the cost for an individual employer was significant, the opportunity exists for that individual employer to use the provisions of the economic incapacity principle. If it be said that employers are reluctant to use that principle because the onus is too high or for other reasons, no employer party sought to change the principle, despite it being an opportune time to address the efficacy or relevance of the principles generally. We note that PATEA submitted the wage fixing principles should be reviewed but made no submission as to in what fashion. 207 There were some submissions, faintly put, intimating that wage increases flowing from last year's State Wage Case decision may have been the cause of a decline in full time and part time employment in the retail and hospitality sectors. The inference seemed to be that further wage increases in 2006 would exacerbate this trend. We deal later in this decision with the effects of minimum wage adjustments on employment generally and we do not propose to repeat what we have said. But to emphasise a point under the later discussion on employment effects, in relation to the data relied upon by Employers First in relation to the retail and hospitality sector, it showed that full time and part time employment in the sector declined by various degrees (depending upon industry and type of employment), in only one 12 monthly period, namely, February 2005 to February 2006. The total decline was said to be 6.8 per cent in respect of the hospitality industry and 4.4 per cent in respect of retail. The unreliability of the data is proven by the fact that when one takes the May quarter 2006 figures, retail increased by nearly 15 per cent over the previous quarter and hospitality increased by over 10 per cent. 208 In any event, the data says nothing about the causes of the decline, which may have had no connection with increases to minimum wages. There was no other evidence that the increase granted in the 2005 State Wage Case caused employers to shed labour. 209 We consider no case has been made out in respect of the retail and hospitality industries that they should be afforded any concession or discount in assessing the amount of any increase to minimum award wages, other than by continuing principles restraining further wage adjustments and providing for exemptions.

[161]

5.9 Conclusion on the Effects of Safety Net Adjustments [279] The material to which we have been referred does not undermine the conclusion expressed by the Commission in the May 2003 decision that there is a continuing controversy amongst academics and researchers about the employment effects of minimum wage improvements. [95] There is nothing before the Commission to indicate that the controversy has been resolved. Substantial safety net adjustments may have some negative effects on employment in those sectors of the economy in which a high proportion of the workers are award-reliant. [280] The material brought to the Commission's attention does not establish an empirical basis for affording greater importance to concerns about employment effects than to other considerations to which we must have regard. Having considered the material, our assessment is that, under current economic conditions, the adjustment we have decided on of itself, will do little or nothing to diminish job prospects. 221 It will be observed from this description of the proceedings before the AIRC in the last three Safety Net Adjustment proceedings that the particular focus of the decision was the 'disemployment' effects of minimum wage adjustments rather than the effects on unemployment. In other words, the AIRC focused upon contentions that an increase in a minimum wage may lower the rate of employment growth rather than necessarily leading to an actual decline in the number employed or a rise in unemployment. This may reflect the fact that studies that find 'disemployment' effects in particular employment sectors (of varying degrees of significance) often find little or no unemployment impacts for the same subject group: see, for example, Brown, C, Gilroy, C, Cohen, A "The Effect of the Minimum Wage on Employment and Unemployment" (1982) 20 Journal of Economic Literature 488 at (505 and 508) and Brown, C "Minimum Wages, Employment and the Distribution of Income" in Ashenfelter, O & Card D (eds) Handbook of Labour Economics (3rd ed.) Elsevier, Netherlands 1999 at 2103. These conclusions regarding unemployment may simply reflect the fact that, as may be expected in this case, the macroeconomic effects arising from a minimum rate adjustment on unemployment may well be negligible: Adams, G "Increasing the Minimum Wage: The Macroeconomic Impacts" in Economic Policy Institute, Briefing Paper (1987). 222 It is also worth repeating the observations of the AIRC (with which we agree) that much of the academic literature concerned the employment effects of a single statutory minimum wage usually for a particular sector of the labour market such as teenage employment rather than attention being relevantly directed to the economic effects of a safety net adjustment in the Australian context: Safety Net Review - Wages, June 2005 at [165]. 223 In this matter, we have received no submission that argued specifically that the grant of the application by Unions NSW would produce a negative impact upon employment, whether by way of the discouragement of employment growth or an actual decline of employment. 224 As we earlier discussed, it was submitted that the business sector likely to be affected by the applications was "vulnerable" in the sense that it was constituted by smaller operators who could, in the submission of Employers First "least afford" the increases sought (in the case of social and community and childcare employers) or lacked financial resilience. It was also submitted, that retail and hospitality employers had relatively low survival rates. However, the closest that any of these submissions came to linking any wage adjustment to adverse employment effects was the rather offhand remark in the written submissions of Employers First that wage increases "can cost jobs". No study, data or research was put before the Commission by any employer party to demonstrate that the particular nature of the industries or areas of employment effected by the grant of an application would experience a significant adverse employment effect from the grant of the application. 225 The mere enunciation of the size of the businesses, the particular industry in which they operate or the labelling of them as 'vulnerable' does little to assist in properly analysing the employment effects of a wage adjustment in that sector. Nor does information referring to the 'exit rate' or 'survival rates' (based on ABS statistics) for these particular businesses. Nowhere was it demonstrated by Employers First that the exit rate or survival rate had increased or decreased as a result of safety net adjustment increases that had been awarded over time. The information merely demonstrated that the industry had a particular characteristic in this respect relative to other industries, not that it was any more or less vulnerable to minimum rate adjustments for those remaining in the sector or that those adjustments had any particular impact upon the rate of survival or exit of particular businesses from industry sectors. Nor was it suggested that the absolute level of wages in those sectors was responsible for the failure of particular businesses. 226 The reasons why a particular business might fail are multi-factorial and we do not consider mere statements that business in a particular industry may have higher exit rates or lower survival rates of itself (without further time-series or trend information and a comparative analysis with wages) is conclusive of any likely effect of an increase in minimum wages upon employment or for that matter the viability of those businesses. At best, it may indicate, in a broad sense, the need for a cautious approach to wage adjustments in the area, but in a non-specific way in the absence of a more comprehensive study. 227 Thus, in the defence of the proceedings by employer organisations there appears to be no relevant issue arising in relation to employment impacts. The tangential references to that topic by Employers First do not adequately and relevantly address the issue of employment. However, we do not propose to rest the issue on that basis, particularly bearing in mind the requirements of s 146 of the Act. We will shortly deal with the evidence of Dr Hughes in this respect (which we note was the subject of some limited challenge in cross-examination). Before doing so, however, we should acknowledge the fact we have referred to OECD and some other material that only came to our attention since the hearing of submissions in this matter concluded. That material is discussed in the paragraphs that follow. 228 We have considered it appropriate to take the rare step of referring to this material because of the public interest requirements of s 146 and because it confirms the conclusions we had otherwise reached based on the material before us, including the conclusion that the impact of moderate adjustments in minimum wages are sustainable without significant adverse employment effects having regard to the state of the national and State economies. 229 There has been much discussion in economic literature about the effects of increases in minimum wages on employment and whether empirical research confirms the theoretical position stated in the classical economic model. That theory has been stated in many ways but for present purposes was usefully described by Charles Brown in his 1999 paper (at 2103) as follows: The simplest model of the effects of the minimum wage is one with complete coverage, homogeneous labor, and a competitive labor market. Instead of the familiar equilibrium where the demand for labor D(w) is equal to the supply of labor S(w) at equilibrium wage w* and employment E* , a binding minimum wage ( wm w* ) leads to demand-determined employment Em = D(wm) and an excess supply of labor S(wm). Since we are simply moving back along the demand curve, the employment loss 1n( Em) depends only on the elasticity of demand for labor and the gap between the minimum wage and the competitive wage. Whether this excess supply of workers is counted as unemployed or as "discouraged" workers depends on whether they report searching (unsuccessfully) for work, so one needs further assumptions about labor force participation (in the presence of unemployment) to say much about the effects on unemployment. One plausible assumption is that workers decide whether to participate in the labor force based on the probability of being employed ( Dwm)/S(wm)) and the wage if successful ( wm) , perhaps on their product, the expected wage. The increase in measured unemployment seems a poor indicator of the minimum wage; the effect on unemployment will be small if workers are easily discouraged and withdraw from the labor force.

[163]

231 It should be noted that this theoretical model operates on the assumption that the employers minimise costs both before and after the minimum wage adjustment, and that workers' skills and level of effort are identical and given exogenously (Brown et al. 1982 at 488). It also proceeds upon the assumption that all workers in the market are covered by the minimum wage. The model has been expanded over time to take in additional considerations or assumptions such as the effect of monopsony, shock effects (in terms of productivity) and two sector models (in which the coverage of the minimum wage is incomplete or where there is queuing for covered-sector jobs). There has also been a theoretical development of the effect of introducing heterogeneous workers into the equation. Doubt has been cast, even at a theoretical level, as to whether labour markets reach a general equilibrium and, if they do, if all parts of the labour force participate (see the discussion of imperfect or segmented labour markets: Gerard Adams, (1987) at 10). 232 These theoretical constructs have been tested over time by empirical studies which, as the AIRC identified, are often directed to the analysis of particular sectors or occupational groups. The empirical studies are directed to testing the conventional proposition that an increase in the minimum wage moves equilibrium backwards along the demand curve for labour (depending upon elasticity for employment) thus potentially reducing the employment of workers affected by the minimum wage adjustment. Nowhere has there been such empirical research undertaken directly on the effect of safety net adjustment changes in the Australian context, let alone an adjustment of the kind sought in this case which may be confined to unincorporated bodies or non-constitutional corporations. 233 As the AIRC has noted in its safety net adjustment decisions for 2003 to 2005, the studies have produced some mixed results which have led to some quite strenuously contested policy questions in economics. It is not without significance that the accepted view of the impact of minimum wages on employment has shifted over time depending upon the development of this empirical research and the academic discussion that is derived from it. A useful snapshot of some of the literature is given by Mark Stewart in his paper "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers", Journal of the European Economics Association, March 2004 (at 68) as follows: A consensus seemed to have emerged by the 1980's that the effect of minimum wages on employment in the United States was negative although probably fairly small. Most of the evidence was based on time-series estimation and much of it on teenage employment, where the effects were felt to be largest. Research findings in the 1990s have blown this consensus apart. On the one hand a growing body of research finds zero or positive employment effects (e.g., Card and Krueger (1994, 1995, 2000) for the United States, the U.S. results in Abowd et al. (2000) and Machin and Manning (1994) and Dickens et al. (1999) for the United Kingdom). On the other hand there is also a body of recent research that finds significant (both statistically and numerically) negative effects (e.g., Kim and Taylor (1995), Currie and Fallick (1996), Burkhauser et al. (2000), Neumark and Wascher (2000), and Neumark et al. (2000) for the United States, the French results in Abowd et al. (2000) and Machin et al. (2003) for the United Kingdom). Thus the employment effect of minimum wages remains a highly contentious issue. 234 We have set out the full references given in that extract (which we have reviewed) in Appendix C. This is not to suggest that the references given by Stewart are exhaustive of the literature on the topic. For example, Charles Brown (1999, at 2154) suggests that a reading of the "new and old evidence" indicates that the short term effect of the minimum wage on teenage employment is small with time-series estimates that centred on elasticity of -0.10 moving closer to zero in samples that included the 1980s. He suggests that one possible reason for this outcome is that the demand for low-wage labour is "just not terribly elastic in the short term" (2157) although some studies do show more significant adverse effects for this group. 235 For his part Stewart made the following conclusions as to the lack of impact of the introduction of the U.K. minimum wage in April 1999: This paper uses individual-level longitudinal data from matched Labor Force Surveys, the British Household Panel Survey, and the New Earnings Survey panel to estimate the impact of the introduction of the U.K. minimum wage in April 1999 on the conditional probability of subsequent employment among those whose wages would have to be raised to comply with the new minimum. A difference-in-differences estimator is employed using individuals from slightly higher up the wage distribution as the comparison group. The estimated impact of the introduction of the minimum wage on the probability of remaining in employment is insignificantly different from zero for all four demographic groups (male and female adults and youths) and all three datasets. This finding is robust to an extensive range of modifications considered. The estimated effect is also found to be positive (although insignificant) for both male groups and for young women in all cases. The estimated effect is negative (although insignificant) for adult women in the LFS, but this depends on the construction of the hourly wage rate using usual hours, and is no longer the case if actual hours in the reference week are used. It is also negative for this group in the NES, although even less significant. In the BHPS the estimated effect is positive for this group (but insignificantly different from zero). These findings too are robust to the modifications considered. In summary, the evidence presented in this paper indicates no significant adverse employment effects of the introduction of the U.K. minimum wage in any of the four demographic groups considered or in any of the three datasets examined. 236 As Stewart acknowledges, those conclusions (and, for example, those of Brown (1999)) may be contrasted with yet other studies of recent times which have come to contrary conclusions showing more significant employment impacts of minimum wage adjustments, for example, see the paper by Taylor, L and Kim, T "The Employment Effect in Retail Trade in California's 1988 Minimum Wage Increase" Institute for Research on Poverty, September 1993. 237 Butler, J in "Minimum Wage Laws and Wage Regulation: Do Changes to a Minimum Wage Affect Employment Levels?" (2006) 29 (1) UNSW Law Journal 181 discusses minimum wage impacts in the context of the establishment of the Australian Fair Pay Commission and the Workplace Relations Amendment (Work Choices) Act. Much of the discussion in the paper focuses upon the prospect of decreasing minimum wages (in both real and absolute terms). Despite the appearance of down playing controversy over the impacts of increases in minimum wages the paper, in fact, describes the range of differing views on the topic but concludes, particularly in relation to more vulnerable workers such as teenagers, that significant negative outcomes will be found. The paper does not deal with most of the articles referred to in Appendices B, C and D of this decision and whilst acknowledging components of the AIRC's 2005 Safety Net decision (as to the comparative position of minimum wages and median wages) does not deal with the discussion by the AIRC of academic studies on the impact of minimum wage adjustments. The paper does, however, acknowledge some factors that we would highlight: 1 In classical economic theory, an increase in the minimum wage will only result in disemployment if the resultant wage is greater than the marginal product of the work in question. It is difficult to know to what extent low paid workers in Australia are above the market clearing rate (at 199). 2 In Australia, the coverage of the minimum wage may be heterogeneous. If a minimum wage rises in a particular sector, then economic theory indicates that jobs will be higher in that sector (although there may be some levelling out of the system as a whole (at 194). 3 The greatest controversy lies in the degree of any impact in minimum wage movements on employment. 4 Other labour market regulation measures will have an impact on the effect of minimum wage adjustments, as will general high levels of economic growth or low levels of unemployment in an economy mute any negative effects of the minimum wage adjustment on employment. In this respect, it should be noted that the paper was written before the recent OECD study we shall refer to below which discusses the effects of labour market programs on employment growth, identifies the ongoing controversy over minimum wage effects on employment and suggests a contrary view as to the significance of those adjustments on employment. 238 The most recent discussion of the topic was undertaken by the OECD in its publication OECD Employment Outlook: Boosting Jobs and Incomes 2006. In that publication the OECD reviewed its policy recommendations to reduce unemployment, raise employment and increase prosperity given in its 1994 publication OECD Job Study (see The OECD Job Study: Facts, Analysis, Strategies, Paris, 1994; The OECD Job Study: Evidence and Explanations, Part 1: Labour Market Trends and Underlying Forces of Change, Paris, 1994, and The OECD Job Study: Evidence and Explanations, Part II: The Adjustments Potential of the Labour Market, Paris, 1994. In particular, the OECD adjusted its conclusion in relation to the economic effect of minimum wage adjustment. 239 The OECD first concluded in relation to "in work benefits" programmes that, under certain conditions, a minimum wage, set at an appropriate level, can be one of the options to prevent employers from pocketing the earnings' subsidy introduced by "in work benefits". Secondly, and more significantly, the OECD concluded that the evidence concerning the impact of minimum wages on employment was ambiguous; that the impact of minimum wages on employment may be modest or non-existent, depending upon the level set; and that minimum wages could, in certain circumstances, encourage higher participation in the workforce. There was particular caution expressed about the setting of minimum wages for young employees. The relevant conclusions of the OECD are as follows (at 86-88): Minimum wages. Simple economic reasoning indicates that a statutory minimum wage or labour costs set at too high a level will become a barrier to employment for low-productivity workers, reducing national output while also frustrating the equity goals motivating these measures. However, pinning down the size of the employment losses that result from minimum wages has proven to be difficult and there is considerable uncertainty concerning how many jobs might be lost due to minimum wages set at the levels actually observed in different countries. Indeed, the empirical evidence concerning a negative impact of minimum wages on employment is mixed, with some studies finding evidence of significant effects, particularly for youth (Neumark and Wascher, 1999; OECD, 1998, Chapter 2), while others do not detect any effects (Card and Krueger, 1995; Dolado et al., 1996; Elmeskov et al., 1998). In Bassanini and Duval (2006), no significant impact of the minimum wage on the aggregate unemployment rate is found. However, some evidence does emerge that higher minimum wages may lower the employment rate of youth ( i.e. the 20-24 age group). The ambiguous evidence concerning the impact of minimum wages on employment means that it is important for governments making use of a statutory minimum wage to monitor closely whether it is resulting in significant job losses. The fact that a considerable number of studies have found that the adverse impact of minimum wages on employment is modest or non-existent, also suggests that there may be scope to use minimum wages as one part of employment-centred social policy, intended to mitigate poverty while fostering high employment rates (OECD, 1998, Chapter 2 and 2003a, Chapter3). A minimum wage could encourage higher participation, by helping to make work pay for the low skilled. But it probably can only play a supporting role in a broader anti-poverty programme, due to the need to avoid setting it at too high a level. Another important limitation is that a substantial proportion of the workers in minimum-wage jobs are not poor ( e.g. because other family members have earnings). In-work benefits can be much more tightly targeted on low-income families than can a minimum wage, but have other drawbacks ( e.g. their budgetary cost and possible stigma effects). Furthermore, as emphasised in Sub-section 2.2, a modestly set minimum wage may be a useful supplement to in-work benefits, since it limits the extent to which employers can appropriate that benefit by lowering pay levels (Gregg, 2000; OECD, 2005d). An important consideration in setting the level of the minimum wage is how it interacts with the tax system, since there is evidence that an overly high minimum wage magnifies the negative impact of the labour tax wedge on employment (see Sub-section 3.2). An employer considering hiring a low-skilled or inexperienced worker is likely to compare the worker's expected productivity with the sum of the minimum wage and employer-paid social security contributions. Table 3.10 shows that the minimum cost of labour, as a percentage of labour costs for the average employee, differs significantly across countries with statutory minima, ranging from under 20% in Mexico in 2004 to over 50% in Australia, Turkey and three EU countries. In most cases, the relative cost of employing a minimum wage worker did not change much between 1997 and 2004. ... Lessons Recent experience confirms the importance of policies to assure that wages adjust flexibly in response to supply- and demand-side pressures, so as to support high levels of employment in a constantly changing economic environment. The detailed policy recommendations for reforming wage-setting institutions remain largely valid, but there appear to be grounds for introducing some modifications: ... Minimum wages. Recent experience suggests that a moderate minimum wage generally is not a problem, but that adequate allowance for sub-minima for youth and possibly other vulnerable groups is essential. Another insight is the potential for a well designed minimum wage to contribute to a broader strategy to foster higher employment by guaranteeing that work pays better than remaining on social benefits. However, the danger posed by negative policy interactions has also been confirmed, particularly that between a too-high minimum wage and high rates of labour taxation. 240 We have set out in Appendix D the references referred to in this quotation that have not otherwise been listed in Appendix B. 241 In addition to the theoretical and empirical works we have referred to, we have also had regard to the evidence of Dr Hughes on the question of employment effects. His evidence was given at both the macroeconomic and microeconomic level. At a macroeconomic level, Dr Hughes gave evidence that the claim by Unions NSW was affordable having regard to Reserve Bank of Australia policy. He also concluded that, from a microeconomic viewpoint, the claim was affordable and that no adverse consequences would likely eventuate from the grant of the claim in full. 242 As to the first proposition, Dr Hughes gave evidence that, for over a decade, the Reserve Bank has maintained the view that general wage movements beyond around 4.5 percent a year were inconsistent with its conduct of monetary policy (consistently with an overall CPI inflation within an annual range of 2 to 3 percent on average over the course of the business cycle). He based this conclusion upon a unit labour cost arithmetic, with the trend in underlying non-cyclical labour productivity growth lying at around 2 per cent per year. Thus, a "wage pace" around 4.5 percent would leave unit labour cost growth around the middle of the inflation range. Any higher "wage pace" would push unit labour cost growth towards the high end and eventually beyond the target range. 243 Dr Hughes thereby concluded that a 4 per cent wage rise would be consistent with the Reserve Bank's "instructions from the Commonwealth Government" leading to a consumer price inflation around the low end of the target range unless offset by other non-wage influences. He contended that " the bank can be presumed to provide sufficient liquidity in other monetary support to accommodate inflation within a 2 to 3 percent target range and therefore the Unions NSW claim was consistent with Reserve Bank macroeconomic control of the economy ". 244 The cross-examination of the witness on this aspect of his evidence was essentially to suggest, erroneously in our view, that his statements as to the policy and position of the Reserve Bank could not be substantiated either in writing or otherwise. His evidence, in this respect, should be accepted. 245 His microeconomic analysis was more controversial. Dr Hughes addressed squarely the issue that, by the wage claim, workers " might be pricing themselves out of the market". He described that issue in this way: "If substantially higher than average wage gains were to be awarded it is possible that consequent relative price changes for the products they produced might lead to a lessened consumer interest and the decline in demand for their services". However, Dr Hughes rejected that outcome for the present proceedings as he considered that the claim sat " right in the middle of a very narrow range within which wage fixing has been occurring". In this he was referring to the latest wage price index (ABS Cat No.6345), which showed that the Australia- wide private sector wage rates gained 4 percent over the year to the March quarter 2006. He concluded that unlike periods of higher unemployment earlier in the decade there has recently been a " considerable evening up in the pace of wage increases. Thus over the year to the March quarter 2006 the lowest increase amongst the 15 industry groups into which the private sector index is disaggregated was 3.01 percent (personal and other services). The largest gain was 5.0 percent in the construction industry ". 246 Dr Hughes then expressed why this outcome would support his conclusion that there would be no adverse microeconomic consequences as follows: Among private sector industrial groupings suggested by the Commonwealth government as most likely to be affected by the outcome of this case the retail trade wage index grew 4.05 per cent, that for the hospitality activities of accommodation, cafes and restaurants by 3.19 per cent, property and business services by 3.96 per cent, health and community services by 4.29 per cent, education by 4.05 per cent and manufacturing by 3.94 per cent. Thus the 4 per cent claim appears unlikely to disturb industrial wage relativities being extremely close to the centre of the concentrated distribution of wage gains now underway. 247 The primary thesis developed by Dr Hughes was that the economic discussion of the impact of the minimum wage adjustments to employment had concentrated upon relative changes in the price of labour or wages and not as he contended would occur in the present circumstances where, because of shifts in the wage price index, the grant of the claim would produce no relative price adjustment. 248 The essential contradiction proposed in cross-examination of Dr Hughes' evidence and in submissions put by Employers First was that the wage adjustments reflected in the wage price index for the relevant period merely reflected the safety net adjustments that had been awarded by the Commission in the previous period. Thus, there would be a relative wage or price movement. 249 We propose to set out part of the cross-examination of Dr Hughes to illustrate the approach taken: Q. Having regard to that, you would agree at least part of the percentages you refer to there take into account the wage increases awarded by the state or Federal Commission over the year? A. Part of those increases indeed would be reflecting arbitrated increases and my understanding is however the arbitrated increases from the safety net minimum wage changes were very much in the minority.

[168]

250 The witness, plainly, did not accept the propositions advanced to him and no countervailing evidence was called by Employers First or any other party opposing the application. On one view, the matter may rest there, but we propose to briefly identify some further reasons as to why we do not propose to accept the submission by Employers First that the evidence of Dr Hughes should be rejected. Those reasons are as follows: 1. The cross-examination relied upon the "Commentary" section of the Labour Price Index publication of the Australian Bureau of Statistics for the December quarter 2005 (Catalogue no. 6345.0). That commentary referred to the Safety Net Review decision of the AIRC decision given on 7 June 2005 and the adoption of that decision by all States and Territories. It then indicated that, despite a variance in the date of the respective decisions, some part of those increases had been reflected in the September quarter 2005 Wage Index as well as the December quarter 2005 Index. The first significant difficulty for the proposition advanced by Employers First was the caveat contained in the commentary as follows: It is not possible for the ABS to determine the relative contribution of the SNR to the increase in the Wage Price Index in either the September or December quarters 2005. 2. As reflected in that observation by the ABS, the Wage Price Index contains a time-series analysis. In the March 2005 Quarter publication of the Labour Price Index it is clearly indicated that in past years of this statistical survey the flow-on effect of the safety net adjustments into the indices has primarily occurred in the September and December quarters of the Wage Price Index. That pattern has obviously been repeated in the December quarter figures for 2005, but plainly indicates that the year-to-year changes contained within the data (whether on a financial year basis or from year quarter to year quarter) will not be wholly based upon the effect of the State Wage Case increases. That conclusion is even stronger when consideration is given to the fact that, as Dr Hughes suggested, there has, in recent years, developed circumstances whereby wage increases have occurred in a relatively narrow band reflecting both those industries or sectors which are the recipients of the safety net review adjustments and those which are not (for example, those which are excluded because of the absorption principle under the wage fixing principles). In other words, there are general trends of wage movements around 4 per cent change in the Wage Price Index shown for the yearly period for the March quarter 2005 to the March quarter 2006. The data is thus reflecting partially some safety net adjustments but also, as Dr Hughes gave evidence, reflecting a strengthening in demand in lower paid sectors resulting in a narrowing of the band of the potential wage price adjustments at any period in modern times. It should be further observed, in this respect, that safety net review adjustments are usually awarded in the light of wage movements which have already occurred and, as Unions NSW correctly pointed out, take into account general wage cost movements as reflected in the Wage Price Index. 3. A further flaw in the proposition advanced by Employers First was that its submissions depended upon the commentary provided by the ABS for the Labour Price Index for the December quarter 2005, whereas Dr Hughes' evidence in his affidavit in reply was based upon the Wage Price Index produced by the ABS for the March quarter 2006. This is not merely a matter of semantics. It has some particular significance given that we are here considering time-series data. The quarterly figures tend to confirm the theory advanced by Dr Hughes in terms of the year-to-year outcomes. Furthermore, the commentary attached to the March quarter 2006 information is in the following terms: Of those jobs reporting a pay increase in March quarter 2006, over half were paid under collective agreements or enterprise agreements. This is plainly consistent with Dr Hughes' evidence, the limitations contained within the December quarter 2005 commentary and the notion that a substantial component of the Wage Price Index will not be reflective of merely safety net review adjustments.

[169]

251 We do not, therefore, consider that the contention by Employers First has been made out that Dr Hughes' microeconomic theory is flawed because he has examined Wage Price Index data which merely reflect, in a circular way, previous safety net adjustments. 252 No party to these proceedings has advanced a contention that the grant of the application by Unions NSW or the acceptance of the contention by the Minister for Industrial Relations for a flat wage adjustment would have an adverse effect on employment growth or result in some deterioration of unemployment outcomes either generally or in the subject industries or sectors. 253 This would no doubt account for the relative absence of material from the employer parties on this important topic. However, we have taken the view that we should, nonetheless, review the question of employment effects of the application in the light of the requirements of s 146 of the Act so that we may satisfy ourselves as to any relevant matters arising in the public interest. 254 The topic of the impact of minimum wage adjustments (and, in particular, safety net adjustments) upon employment growth (as opposed to unemployment) remains somewhat contentious. Some part of that controversy will, no doubt, be alleviated or resolved by the recent authoritative announcement by the OECD, which we have referred to in this section of our decision. The OECD study plainly indicates that there is scope for moderate minimum rate adjustments without significantly affecting employment growth in an adverse way (provided some tempering of the adjustment in wages is undertaken for particular groups such as teenage workers). 255 On the other hand, Dr Hughes' evidence would suggest that no adverse microeconomic employment impacts would arise from the granting of the current application. Nothing put to us in this case would suggest that his analysis is in any way flawed. 256 We consider that a balance should be struck in determining the present application between recognition being given to the recurrence in economic literature of findings which would suggest some negative impact in employment growth from minimum rates adjustments (particularly in relation to some sectors referred to in the studies which may intersect with the employment areas considered in this case) and the evidence before us (both at a macroeconomic and microeconomic level) which suggests that the increases sought are by and large sustainable. In the final analysis we have reached a similar conclusion to the AIRC in Safety Net Review - Wages, June 2005 decision. There is no basis on economic grounds relating to employment growth to displace an outcome otherwise warranted under s 10 of the Act. However, it will be appropriate to temper our conclusion as to the amount of adjustment so as to minimise or eliminate any potential adverse employment impacts.

[171]

258 It was submitted that should the application be granted in full there would be: · A net impact on aggregate wages in New South Wales of 0.06 percent; · A maximum addition to total ordinary time earnings in New South Wales of 0.19 percent, and; · An impact on CPI of 0.03 per cent. It was further submitted, "The economic impact can be properly described as negligible." 259 In relation to the costing methodology, Mr Thistlethwaite submitted: The costing methodology measures the total increase in ordinary time earnings for all employees attributable to the proposed increase in award rates. The costings are based on unpublished data from ABS Cat. 6306.0 Survey of Employee Earnings and Hours, May 2004. The methodology used by Unions NSW is very similar to the costing methodology utilised by the ACTU in recent National Wage Cases (See pages 77 - 84 of the ACTU's written submissions to the 2005 Safety Net Review of Wages and pp 99-101 Decision Safety Net Review of Wages June 2005 AIRC Print PR002005). In past National Wage cases employers have criticised the ACTU's methodology on a number of grounds. These included the ACTU's discounting of the costs of the claim to allow for non-compliance and the existence of arbitrated agreements in the form of s170 MX awards. This discounting has been held to valid by the AIRC. Notwithstanding this Unions NSW has not adopted this approach at a State level and assumes that 100 per cent of all eligible award dependent employees in New South Wales will immediately receive the full amount claimed. Whilst this will undoubtedly result in an overestimation, in the absence of appropriate state data dealing with compliance issues no discounting has been applied to the costing. The costing of the claim is based on New South Wales specific data from the EEH survey, including the number of award dependent employees within the NSW jurisdiction. The total number of award dependent employees in NSW working within the private sector within an unincorporated business is estimated to be 9.06 per cent. As the ABS EEH Survey does not differentiate between State and Federal Award coverage, this figure includes all award dependent employees State and Federal. It is believed that the vast majority of workers within unincorporated businesses will fall within the NSW Commission's jurisdiction. A small number of 'transitional employees' will be within the Federal jurisdiction and will be the subject of a minimum wage case some time in the future.

[176]

266 The Minister also submitted: In broad terms a 0.2 per cent increase in private sector business costs would be unlikely to have a major impact on the State's economy. That is, the macroeconomic impact of a $20 per week increase is likely to be small in terms of its impact on employment. The New South Wales economy has grown at modest rates in recent years, notably due to a downturn in the housing construction sector. Looking ahead, growth is expected to lift as a modest recovery begins in the housing sector, while growth in consumer and business spending remains firm. A $20 per week increase for the lowest award rate would equate to a 4.1 per cent increase. In 2005, the ABS Wage Price Index for all employees rose by 4.1 per cent nationally in year average terms and by 4.0 per cent in New South Wales. Thus a 4.1 per cent increase for the lowest award rate is broadly in line with average wage increases across the entire economy. Data is not published at a state level by industry, but at a national level there were divergences in increases in the Wage Price Index by industry in 2005 in year average terms, with increases ranging from a low of 3.2 per cent in the accommodation, cafes and restaurants sector, a 3.6 per cent increase in the retail sector, a 4.9 per cent increase in the construction sector and a high of a 5.0 per cent increase in the education sector. 267 In relation to the public sector, the Minister submitted: The only major group in the New South Wales public sector that are dependent on SWC adjustments for pay increases are trainees covered by the Crown Employees (Public Service Training Wage) Award 2005. These temporary employees undertake traineeships ranging from 12 months to 2 years. During the 2004-05 financial year, 1434 trainees commenced employment in the public sector. From previous experience SWC increases for this group have not had a significant affect on agency budgets. In addition to these trainees, a small number of Government employees are paid under common rule awards and also receive their pay increases through SWC adjustments. In particular, the Department of Education / TAFE have some classifications that receive SWC increases such as childcare workers, nursery cooks, school canteen staff, and shop assistants. As at 31 March 2006 the number of non-trainee public sector staff currently employed under common rule awards is approximately 330. Past State Wage Cases have had only a limited impact on public sector employment. It is anticipated that the cost impact of any SWC decision on wages and salary levels in the New South Wales Government in 2006 will be marginal. 268 There was no attempt by the employer parties to cost the impact of the claim nor did they contest the costings of either Unions NSW or the Minister for Industrial Relations. 269 On any assessment, however, even if this Full Bench were to award the 4 per cent claim in full, its impact on the New South Wales economy would be quite small. FLAT OR PERCENTAGE INCREASE

[177]

270 Unions NSW submitted that the application for a 4 per cent increase in award wages was consistent with the recent wage price index figures of 4.2 per cent nationally and 3.5 per cent in New South Wales. It was submitted that a percentage outcome, rather than a flat dollar amount increase was desirable on this occasion to avoid a further compression of the skills relativities in classification structures in awards and the subsequent undermining of the properly established skilled based career structures within awards. 271 The Minister for Industrial Relations submitted that a flat $20 increase was appropriate because it would directly benefit the lowest paid workers in the workforce with a negligible impact on employment and productivity, and was likely to promote increased participation. 272 There is substance in Unions NSW submission supporting a percentage increase in award rates. Over the past decade, overwhelmingly any increase to award rates in State Wage Cases has been by way of a flat increase. This has had the effect of compressing relativities within and between awards adversely affecting the integrity of skill based career structures. By way of example, the rate of pay for a C13 classification in the Metal, Engineering and Associated Industries (State) Award in 1997 was 83.36 per cent of the benchmark C10 rate. In 2005 it was 86.66 per cent. 273 We expect that in a number of industries the problem of compressed relativities can be overcome at the enterprise level through overaward payments or enterprise agreements. But we are concerned that if flat increases are to continue as the method of adjusting wage rates in State Wage Cases, the question of award based relativities may develop into an industrial issue in some industries. 274 Nevertheless, we consider on this occasion any increase should be a flat increase. Our reasons for this lie with our concern for low paid workers who often may not have the skills or the opportunity to follow a career path and who receive no overaward payments. Moreover, we note, in particular, the evidence regarding the increasing divergence in earnings in Tables 8, 9 and 10. There is also the fact that tax cuts will be implemented from 1 July 2006 and they will tend to favour those on higher incomes. For example, the tax cut for employees earning less than $25,000 per annum will be less than the cut for employees earning more than $25,000. 275 Whilst the adjustment on this occasion will be a flat increase, we should make it clear that in any State Wage Case proceedings in 2007 the parties will be required to address the issue why any increase granted should not be on a percentage basis. AMOUNT OF INCREASE

[178]

276 Unions NSW claim is for a 4 per cent increase in minimum wages. The rationale for the figure of 4 per cent was explained in the applicant's written submissions: Awarding the application will ensure that the wages of award dependent workers increase in a way that is comparable to increases for others in the community. This is because the application is based on the Wage Price Index (WPI) as the measure of general wage movements. The WPI is an index measuring the changes in wage movements rather than levels and in does not include non-wage costs. It is constructed by measuring the cost of purchasing the same quality and quantity of labour input. Therefore, it is analogous in its construction to that of the Consumer Price Index (CPI). The advantage of the WPI over most of the other measures of wage growth such as the Average Weekly Ordinary Time Earnings (AWOTE) and Average Weekly Earnings (AWE) is that it does not incorporate compositional change in the workforce, such as, for example, people moving from full-time to part-time work, or promotions. The WPI measures changes in the price paid for a particular job over time. Moreover, unlike the Average Earnings on a National Accounts basis (AENA) the WPI excludes major non-wage costs such as superannuation, pay-roll tax, workers compensation and annual and public holiday leave. In previous federal Safety Net Review decisions, the AIRC highlighted the benefits of the WPI as compared to other measures of wage movements as an indicator of wage movements for the purpose of the determining the Safety Net Review decision. It is accepted that the AWE and AWOTE data are affected by compositional changes in the workforce. While the AENA and WCI [the WCI (Wage Cost Index) was the name previously given to the WPI. The ABS changed the name in 2004] data both record the increase in wages for a given job, and therefore are not affected by compositional change, AENA includes some non-wage costs such as superannuation, redundancy payments and workers' compensation payments. We agree with the Commonwealth that the WCI data are the most direct measure of changes in wage costs for a particular position and therefore the most useful indicator for our purposes (AIRC Safety Net Review decision, May 2004 at [132]). It is for these reasons the WPI is the appropriate indicator to use for measuring the fairness and economic impact of Unions NSW application. By awarding the application, which is based on the WPI, the Commission can ensure that award dependent workers do not fall further behind others in the community. The application reflects the national WPI. The application is based on the national WPI because Unions NSW is making an identical application to the claim made in other state wage cases. In any event the application for an increase in award wages of 4 per cent is consistent with recent outcomes for the WPI in NSW and the forecast figure over the coming year. The claim, at 4 per cent, is conservative being less than the current rate of the WPI, which is 4.2 per cent for the December quarter 2005 at a national level. The NSW WPI forecast for 2005-06 is 4.25 per cent [revised to 4.0 per cent]. The claim, being based on the WPI to ensure maintenance of the relative position of award wages, is not an ambit claim. To maintain the relative position of award workers the application must be granted in full. 277 The Award Review Classification Rate is currently $484.40. This is the rate below which no full-time adult employee (excluding trainees, apprentices and employees on a supported wage or on a probationary rate) should be paid under the relevant award. A 4 per cent increase in the Award Review Classification Rate translates into an increase of $19.40 per week. For the benchmark tradesperson rate of $578.20, 4 per cent would mean an increase of $23.10 per week. The average increase based on 4 per cent for, say, the Metal, Engineering and Associated Industries (State) Award would be $25.60 per week (non-weighted). 278 A $20 increase would represent a 4.1 per cent increase on the Award Review Classification Rate.

[179]

279 The WPI for 2005-06 in New South Wales is forecast to be 4.0 per cent and the same figure has been nominated at the national level. The Consumer Price Index for the national economy for 2005-06 is estimated to be 3.0 per cent, whereas the CPI for Sydney is estimated to be 2¾ per cent for 2005-06. 280 It is evident from the material provided by the Minister for Industrial Relations, and referred to earlier in this decision, that the minimum wage compared with median earnings and Average Weekly Ordinary Time Earnings (AWOTE) for full-time employees has steadily declined over the period 1996 to 2005. Award-reliant employees who are dependent on adjustments to minimum award levels for increases in wages have experienced a significant loss of relativity. 281 In relation to casual employment, we note the submission by the Minister for Industrial Relations that: Current data indicate 27 per cent of Australians in their main job were casual at August 2005. Of these workers, 65 per cent were part-time, 54 per cent were female and 26 per cent worked in the retail trade industry, 23 per cent worked in clerical, sales and service, 20 per cent were aged 15-19 and 30 per cent earned less than $200 per week in their main job. Average earnings from full-time casual and part-time permanent or casual jobs have declined relative to full-time permanent earnings: Australian Bureau of Statistics 2005, Employee Earnings, Benefits and Trade Union Membership, cat. no. 6310.0, ABS, Canberra. 282 We consider that Unions NSW has established a substantial case for the grant of its application under s 51 of the Act. We shall make principles which permit, upon an application consistent with those principles, an increase in minimum rates under State awards. The primary reason for that conclusion is that the applicant has established on the evidence that there are "good reasons" for the purposes of s 51(1) of the Act to warrant that outcome. Having regard to the basis for safety net adjustments in modern times, the applicant was entitled to rely upon, subject to countervailing economic considerations, movements in wage costs as reflected in the wage price index and the erosion of the purchasing power of wages within the relevant period to establish a case for a general adjustment in wages. The claim is in conformity with those criteria. More significantly, and having regard to the requirements of the Commission to set fair and reasonable conditions of employment for employees under s 10 of the Act (see also s 3(a)), we consider that a powerful case has been established by Unions NSW and the Minister for Industrial Relations for the adjustment of wages of the low paid, having regard to the economic position of those workers, including their income and living costs, and questions of wage dispersion and income inequality. These workers have little or no bargaining power so as to engage in enterprise bargaining (and employers have not engaged in enterprise bargaining in this area), and have a reduced capacity to sustain themselves and their families at an acceptable standard upon the present levels of minimum wages. We have discussed these issues at some length in our decision.

[181]

284 We have decided that an increase of $20 per week is appropriate. In doing so, we would observe that the decision we make, if applied to the relevant amounts relating to the minimum wage and AWOTE in Table 9, would result in only the maintenance of the latest relativity. It would certainly not return the relativities to the levels of the 1990s. The Award Classification Review Rate shall be increased by $20 to $504.40 per week. Relevant allowances shall be increased by 4 per cent. We would observe, in establishing that increase in rates of pay, we have had regard to the failure by Employers First and the Joint Employers to identify any position in the proceedings as to wage adjustments other than contending for no wage increase at this time. In that respect, we adopt for the present proceedings the following observations of the Full Bench in Health Employees Pharmacists (State) Award and other Awards (2003) 132 IR 244 at [5]: [5] Whilst the HAC ultimately adjourned its cross claim for the inclusion of certain conditions of employment provisions and did offer in a very limited way alternative definitions for some employment classifications caught by the application, it essentially engaged in a blanket repudiation of the application by resisting outright any substantial reclassification, redefinition of classifications or adjustment to rates of pay. We consider that that approach (of essentially outright opposition) to be quite unsatisfactory in this matter for three reasons: 1. We refer to the recent observations of a Full Bench of this Commission in Re Health and Community Employees Psychologists (State) Award (2001) 109 IR 458 at [61]: 61 In reaching our conclusion, we are not unmindful of the traditional rigidities in public service structures which are no doubt reflected in the psychologist's scale as set over 30 years ago. Such a scale, in our view, does not meet the new demands and wholly different nature of the work of public hospital psychologists as we have identified. That issue was not dissimilar to that discussed by a Full Bench of the Commission in Re Public Hospital Social Workers Award (unreported, Full Bench, 86/264, 20 December 1988) where the Industrial Commission in reviewing the salary scale for social workers commented (at pp8-9): Historically, traditional rigidities in the public service structure have resulted in salary scales which have had to satisfy two different functions, firstly to provide a management and supervisory hierarchy to satisfy the requirement of control and secondly to provide appropriate salaries reflecting skill and responsibility. In this case, however, whilst there would appear to be deficiencies in the structure the employer has not sought to put forward by constructive submissions as to how the difficulties might best be overcome from the employer's point of view. Clearly, society, the employer and the social workers themselves consider that social work and social worker roles have progressed from adjuncts to the provision of medical and hospital services to an integral and professional service provided not only to the individual patients but also the other health professionals. Stresses which modern society has placed upon the individual within that society have led to a greater range of professional work than has been necessary or desirable in the past. We consider similar comments are apposite in the present case. The respondent's position was to oppose any change in the classification structure or any increase in salaries; it proposed no alternative to the applicant's claims. As unfortunate as that approach may be in not providing the Commission with an arguable alternative, we have to say it has compelled us to accept more forcefully than we might otherwise have done the evidence led in these respects by the applicant. These remarks are apposite in the present matter. ... 3. In the result, the Commission was left without any real assistance by the opponent to the primary application as to the appropriate resolution of the issues raised by it, in circumstances where it was reasonably clear that at least some alternative to the form of existing awards would be required. One consequence of this approach, as was observed by the Full Bench in the Psychologists case, is that, where there is a clear indication in the proceedings that some wage or classification adjustments are appropriate (in accordance with the wage fixing principles) the Full Bench is left without any 'arguable alternatives' from the HAC as to the form of the award, that is, the actual adjustments to the award which may be appropriate. Thus, we have been compelled, where classification and wage adjustments have been found to be warranted under the wage fixing principles in relation to a particular aspect of the application, as in the Psychologists case, to "accept more forcefully than we might otherwise have done," the position advanced (on the evidence) by the HSU. WAGE FIXING PRINCIPLES

[213]

Special Case Except for the flow on of test case provisions, any claim for increases in wages and salaries, or changes in conditions in awards, other than those allowed elsewhere in the principles, will be processed as a special case before a Full Bench of the Commission, unless otherwise allocated by the President. This principle does not apply to applications for awards consented to by the parties, which will be dealt with in the terms of the Act, or to enterprise arrangements, which will be dealt with in accordance with the Enterprise Arrangements principle. 11. Enterprise Arrangements (a) The Commission may approve of enterprise arrangements reached in accordance with this principle and the provisions of the Act. (b) Industrial unions of employees and industrial unions of employers, or industrial unions of employees and employers, or employees and employers may negotiate enterprise arrangements which, subject to the following provisions, shall prevail over the provision of any award or order of the Commission that deals with the same matters in so far as they purport to apply to parties bound by the arrangements, provided that where the arrangement is between employees and an employer a majority of employees affected by the arrangement genuinely agree. (c) An enterprise arrangement shall be an agreed arrangement for an enterprise, or discrete section of an enterprise, being a business, undertaking or project, involving parties set out in paragraph (b). (d) Enterprise arrangements shall be for a fixed term and there shall be no further adjustments of wages or other conditions of employment during this term other than where contained in the arrangement itself. Subject to the terms of the arrangement, however, such arrangement shall continue in force until varied or rescinded in accordance with the Act. (e) For the purposes of seeking the approval of the Commission, and in accordance with the provisions of the Act, a party shall file with the Industrial Registrar an application to the Commission to either: (i) vary an award in accordance with the Act; or

[215]

(ii) whether the proposed award or variation is consistent with the continuing implementation at enterprise level of structural efficiency considerations. (g) The Commission is available to assist the parties to negotiations for an enterprise arrangement by means of conciliation and, in accordance with these principles and the Act, by means of arbitration. If any party to such negotiations seeks arbitration of a matter relating to an enterprise arrangement such arbitration shall be as a last resort. (h) Enterprise arrangements entered into directly between employees and employers shall be processed as follows, subject to the Commission being satisfied in a particular case that departure from these requirements is justified: (i) All employees will be provided with the current prescriptions (e.g. award, industrial agreement or enterprise agreement) that apply at the place of work. (ii) The arrangement shall be committed to writing and signed by the employer, or the employer's duly authorised representative, with whom agreement was reached. (iii) Before any arrangement is signed and processed in accordance with this principle, details of such arrangement shall be forwarded in writing to the union or unions with members in that enterprise affected by the changes and the employer association, if any, of which the employer is a member. (iv) A union or employer association may, within 14 days thereof, notify the employer in writing of any objection to the proposed arrangements, including the reasons for such objection and in such circumstances the parties are to confer in an effort to resolve the issue. (v) Where an arrangement is objected to by a union or employer association and the objection is not resolved, an employer may make application to the Commission to vary an award or create a new award to give effect to the arrangement. (vi) A union and/or employer association shall not unreasonably withhold consent to the arrangements agreed upon by the parties. (vii) If no party objects to the arrangement, then a consent application shall be made to the Commission to have the matter approved in accordance with paragraph (e) of this principle. (viii) Such arrangement once approved shall be displayed on a notice board at each enterprise affected. 12. Superannuation (a) An application to make or to vary a minimum rates or paid rates award which: (i) seeks a greater quantum of employer contributions than required by the Superannuation Guarantee (Administration) Act 1992 (Cth) ('the SGA Act'); or (ii) seeks employer contributions to be paid in respect of a category of employee in respect of which the SGA Act does not require contributions to be paid; shall be referred to a Full Bench for consideration as a special case, unless otherwise allocated by the President. Exceptions to this process are applications which fall within the Enterprise Arrangements and First Awards and Extensions to Existing Awards principles. (b) If an application is made that does not fall within paragraph (a), the Commission will, subject to paragraph (c): (i) make or vary an award by inserting a clause stating: 'Superannuation Legislation - The subject of superannuation is dealt with extensively by federal legislation including the Superannuation Guarantee (Administration) Act 1992 (Cth) , the Superannuation Industry (Supervision) Act 1993 (Cth); the Superannuation (Resolution of Complaints) Act 1993 (Cth) and s124 of the Industrial Relations Act 1996 . This legislation, as varied from time to time, governs the superannuation rights and obligations of the parties'. (ii) if appropriate, ensure that the award contains specification of an employee's earnings (e.g. 'ordinary time earnings') which, for the purposes of the SGA Act, will operate to provide a 'notional earnings base', and (iii) if the award is to continue to prescribe a 'flat dollar' amount of employer contribution, ensure that appropriate amounts are inserted so as to give effect to the levels of contribution required from time to time under the SGA Act. (c) The Commission may award provisions which differ from those in paragraph (b): (i) by consent; or (ii) in the absence of consent, by arbitration, provided the Commission is satisfied that there are particular factors warranting the awarding of different provisions. Such factors may include: (A) the wishes of the parties; (B) the nature of the particular industry or enterprise; (C) the history of the existing award provisions; (D) relevant decisions of the Commission establishing superannuation principles; and (E) relevant statutory provisions. (d) Before any different provisions are awarded under paragraph (c), either by consent or arbitration, the Commission must be satisfied, on expert evidence, that the award to be made will not contain requirements that would result in an employer not meeting the requirements imposed by the SGA Act. (e) Subject to s124 of the Act, any specification of a fund will carry with it the obligation for an employer to pay contributions at such intervals as are required by the fund.

At a glance

Court

Decision date

Before

Source

Judgment (273 paragraphs)

Legislation Cited (5)

Cases Cited (15)

Cited By (5)