State Wage Case 2007 [2007] NSWIRComm 118

State Wage Case 2007 [2007] NSWIRComm 118 | Case summary | Zoe

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ANNEXURE A STATE WAGE CASE 2007 WAGE FIXING PRINCIPLES 131 1. Preamble 131 2. When an Award may be Varied or Another Award Made Without the Claim Requiring Consideration as a Special Case 131 3. Previous State Wage Case Increases 132 4. Test Case Standards 132 5. Adjustment of Allowances and Service Increments 133 6. Work Value Changes 133 7. Standard Hours 135 8. State Wage Case Adjustments 136 9. Award Review Classification Rate 137 10. Special Case 138 11. Enterprise Arrangements 139 12. Superannuation 141 13. First Award and Extension to an Existing Award 144 14. Equal Remuneration and Other Conditions 144 15. Economic incapacity 147 16. Duration 147

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2 We shall deal with the applications in detail shortly but before doing so it is appropriate to make a number of observations about part of the background to these proceedings. 3 A similar application by Unions NSW - indeed, it was also for a 4 per cent adjustment - came before the Commission in the first half of 2006. The application was made in unusual circumstances, they being the absence of a National decision as defined in s 48 of the Industrial Relations Act 1996 and in the face of calls by the Commonwealth Government and a number of employer interests to adjourn the application 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 that year. 4 The calls for adjournment were based on notions of comity. It was contended, in effect, that this Commission should relinquish its wage-fixing role in relation to the private sector in favour of the AFPC in order to avoid different outcomes for businesses only because of their corporate status. As it was explained in State Wage Case 2006 (2006) 150 IR 393, the course proposed by employers and the Commonwealth would have meant an abrogation of the Commission's statutory responsibilities and, accordingly, it was rejected. Following an exhaustive analysis of the evidence and submissions, the Full Bench determined that wages under State awards should increase by $20.00 per week and confirmed the continued operation of its Wage Fixing Principles: State Wage Case 2006 (No 6). 5 The wisdom of not acceding to calls to simply follow the AFPC's lead has been confirmed by the AFPC's decision in October 2006. In that decision the AFPC provided for: · an increase of $27.36 per week in the standard Federal Minimum Wage; · an increase of $27.36 per week in all Pay Scales up to and including $700 per week; and, · an increase of $22.04 per week in all Pay Scales above $700 per week. The increases all took effect from 1 December 2006. The AFPC indicated it would deliver its next general wage-setting decision in mid-2007. 6 The decision has caused significant implementation problems for employers and created inequities in wage levels for employees. The principal - but not the only - problem has been the failure of the AFPC to publish Pay Scales. This has resulted in widespread, ongoing confusion amongst employers. Other problems with the decision raised by employers included: · no provision was made for absorption of increases into existing pay rates; · no provision was made for employers to plead incapacity to pay; · the application of the increases granted by the AFPC to Notional Agreements Preserving State Awards (NAPSAs) where wages under the NAPSA had been adjusted prior to 27 March 2006 and where employers claimed the intention of the parties to those NAPSAs was to exclude further increases for the life of the award, thus resulting in double dipping. This has resulted in substantially differing increases payable by employers in the same industry thereby creating serious inequities, a matter we shall address in more detail in relation to the Social and Community Services Employees (State) Award and the Miscellaneous Workers Kindergartens and Child Care Centres (State) Award; · the 12-month rule, that had been a part of the AIRC's wage fixing principles whereby a minimum period of 12 months was to elapse between safety net adjustments, was not part of the AFPC's decision; · the decision did not provide for the rounding of increases; and · the operative date did not take account of pay periods or shift arrangements. Instead, it required employers to increase rates from midnight on 30 November 2006.

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9 If the Commission had embarked on the course proposed by the Commonwealth and employers in the 2006 State Wage Case, and adopted the decision of the AFPC by regarding it as a National decision under s 50 of the Act (albeit contrary to the terms of the statute itself), it would have not only compounded the problems produced by the AFPC decision but it would also have had a major destabilising effect on wage fixation in the State. For workable harmonisation or comity to be achieved, it would mean, for a start, that this Commission would need to abandon critical elements of its Wage Fixing Principles, if not the Principles themselves. It would certainly mean discarding the 12-month rule and the absorption principle. No party proposed such a drastic step. Indeed, all parties supported the retention of the principles except in one area where Unions NSW sought an amendment, which was opposed by all other parties. 10 Of course, no amount of effort on the part of this Commission in seeking to achieve comity in its 2006 State Wage Decision would have prevented the double dipping problem complained of by employers and unions referred to earlier. That is, in addition to wage increases granted prior to March 2006 by this Commission, and where it was said by employers that the intention of the parties to those awards was to exclude further increases for the life of the award, the AFPC decision meant that wage rates under those awards, in their new manifestation as NAPSAs, were increased by $27.36 or $22.04. The result has been that unincorporated employers bound by the Kindergartens and Child Care Centres (State) Award 2006 and the Social and Community Services Employees Award 2006 for instance, did not incur an additional wage increase of $20.00 as a consequence of the 2006 State Wage Case decision because of the operation of Principle 8(g) of the Commission's Wage Fixing Principles, but incorporated employers in the same industries who found themselves bound by a NAPSA after March 2006, incurred an additional wage increase for employees of $27.36 or $22.04. 11 A similar problem arises in relation to the Nursing Homes &c., Nurses' (State) Award and the counterpart NAPSA. In relation to that Award, rates of pay for all nursing classifications were increased by 6 per cent from the beginning of the first pay period to commence on or after 30 March 2005 and a further 6 per cent from the beginning of the first pay period to commence on or after 30 March 2006. That brought the rate of pay for a Registered Nurse, 8th year of service under the Award to $1088.50 per week. Under the counterpart NAPSA the rate was increased to $1110.36 per week from midnight on 30 November 2006. The distortion that creates in the labour market in the aged care industry should be obvious, especially in the absence of overaward payments and the relative lack of penetration in the industry of enterprise bargaining. On the administrative side, it has meant that the Aged and Community Services Association now distributes to its members two salary schedules for the same classification structure, one for its unincorporated members and the other for its incorporated members. 12 We consider, nevertheless, that Mr Warren was correct in his submission that it is impossible to reconcile the two wage fixing systems. Their statutory underpinnings are incompatible and this has manifested itself in the different approaches of the AFPC and of this Commission to the fixation of minimum wages. It is not possible to regard the AFPC's decisions as National decisions under s 48 of the Act and we do not propose to adopt such decisions, although we shall endeavour, later in this decision, to address the problem produced by the AFPC's October 2006 decision in relation to the Kindergartens and Child Care Centres (State) Award. THE CLAIMS 13 In its application filed on 7 December 2006, Unions NSW sought to initiate a State Wage Case in which it made the following claims: (a) a 4% increase in rates of pay in certain awards in accordance with the State Wage Fixing Principles.

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Such other grounds and reasons as the Commission deems appropriate. 15 In summarising the bases of the claim Mr M Thistlethwaite, for the applicant, submitted: · the application for a four per cent increase in wages and allowances is moderate, justified and sustainable. The application seeks to maintain the relative and real value of award wages in NSW. The application is consistent with the objects of the Act and the Commission's statutory obligations to make awards setting fair and reasonable conditions of employment; · the application is consistent with average annual wage increases being achieved under enterprise agreements at both a state and national level. The application will not discourage enterprise bargaining in NSW. The application is also consistent with increases in average earnings of employees throughout the economy; · although the NSW economy has under-performed relative to other states in more recent times, the fundamental economic indicators in NSW, in particular employment indicators and wage indicators, are sound. Expert evidence supports the conclusion that our claim will not be detrimental to the NSW economy; · the application seeks to ensure the maintenance of fair wages and conditions in NSW awards. The application principally affects award wage workers who lack bargaining capacity in their workplaces; · award wage workers are reliant on these proceedings to maintain the real and relative value of their incomes so that they can participate in society; · it is incumbent upon the Commission to ensure the continued relevance of awards by maintaining the relative value of award wages associated with the various classification structures in those awards. Further it is incumbent on the Commission under section 10 of the Industrial Relations Act to ensure wages and conditions in awards are fair and reasonable. It would be unfair to award another flat dollar increase and further compress the skill relativities in classification structures in awards; and · broadly, the Principles operate in accordance with the objects of the Industrial Relations Act, and do not require wholesale amendment. However Principle 8(g) should be amended to ensure awards which have had wage rates increased as a result of the operation of the Work Value or Equal Remuneration Principles do not have future State Wage Case increases absorbed. The proposed amendment was in the following terms: (g) The State Wage Case adjustment will only be available where the rates in the award have not been increased, other than by Safety Net or State Wage Case adjustments, or as a result of the application of principles which set minimum rates, namely the Minimum Rates Adjustment principle, the Work Value principle, and/or the Equal Remuneration principle , since 29 May 1991 (the words in italics are proposed to be added by Unions NSW).

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17 The Minister submitted that a $20.00 increase in the minimum wage in New South Wales was an economically sustainable and responsible increase. Mr J V Murphy of counsel for the Minister submitted that such an increase would directly benefit the lowest paid workers in the workforce with a negligible impact on employment and productivity, and was likely to promote increased workforce participation. It was submitted that there were approximately 555,000 employees of unincorporated entities in the private sector of New South Wales who remained in the New South Wales industrial relations system. Of these between 187,000 and 246,000 were reliant on minimum award rates and would receive a direct benefit from an increase to the minimum wage in New South Wales. 18 The Minister's submissions summarised the argument for a $20.00 flat increase to certain award rates of pay; outlined the Unions NSW claim and discussed the legislative framework within which the claim was made; provided an overview of the state of the New South Wales economy; detailed the extent to which the claim would affect New South Wales workers and businesses, and the capacity of the economy to absorb it; looked at current participation rates and how maintaining a fair minimum wage encouraged labour force participation; examined the negligible impact a minimum wage increase was likely to have on employment; looked at the limited scope for productivity improvements in award reliant industries and argued that restricting the minimum wage would only increase profitability, not productivity; presented the outcomes of the "New South Wales Industrial Relations Survey" of over 990 diverse New South Wales businesses; examined income and expenditure characteristics of low paid workers and households, illustrating what was argued to be the need to maintain a decent minimum wage to avoid the establishment of a working poor; looked at why a fair and decent minimum wage should be maintained for workers with limited bargaining power, including women, indigenous people, migrants, young people and disabled workers; and presented the Minister's response to proposed amendments to the wage fixing principles outlined in the Unions NSW submission. 19 In this last respect, the Minister did not agree that the broad amendment to Principle 8(g) put forward by Unions NSW was the most appropriate way to address the situation. Rather, it was the Minister's view that the decision to allow access to State Wage Case increases to awards that have received increases under the Work Value Changes or Equal Remuneration Principles was best made on a case-by-case basis by the Commission at the time of hearing the application for increases under those Principles.

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21 In a comprehensive and considered submission, the Catholic Commission for Employment Relations ("CCER") contended that the increase in the Award Review Classification Rate ("ARCR") should be 6.5 per cent or $32.79 in order to bring the low paid above the Henderson Poverty Line. CCER maintained that this increase was the most preferred outcome to assist the low paid. However, CCER acknowledged that other issues regarding sustainability and affordability needed to be considered. After taking into account questions relating to sustainability, particularly the State's recent and projected economic performance, CCER submitted a flat dollar increase of $27.00 was the most appropriate outcome to balance the needs of the low paid and that of employers, while supporting and growing the New South Wales economy. This amount of increase would bring the ARCR to $531.40 per week, which would, according to CCER, constitute a minimum award wage. 22 CCER also submitted that as to other wage rates up to and including $770 per week "these rates should be increased by the total of the three CPI increases [June, September and December 2006] and a further amount that provides a fair distribution of the continuing gains in the Australian economy." As for wages above $770 per week CCER submitted: These workers have suffered a substantial real wage decrease over the period since 1997. They are vulnerable and dependent upon the fairness of the State Wage Case decisions because they are unable to bargain for a higher rate of pay than that fixed through awards. As a matter of fairness and equity they should now have an increase in their real wages, particularly in view of the strength of the Australian economy. CCER submits that these rates of pay be increased by a percentage that is in excess of the aggregate of the three CPI movements since the June 2006 quarter. The percentage should be no less than the percentage required to produce a money amount of $771 per week that is the same or more than the amount payable to a worker on $770 per week. 23 In support of its submission on the amount of wage increase, CCER presented data to show that the Consumer Price Index (CPI) figures for Australia as a whole did not adequately reflect the growth of the cost of living for minimum wage dependent families. CCER estimated that the inflation figure for these families was closer to 5.2 per cent. This was based on an analysis of the affordability of essential goods including food, housing and transportation costs. 24 The submission also examined: · Underemployment, noting that 29 per cent of the labour force was employed part time, the second highest rate in the developed world, only after Holland. · The difficulties mothers face in accommodating the demands of the workplace while managing parental responsibilities, which is exacerbated by the cost of childcare. The submission notes that the underemployment rate for men is 3.7 per cent compared to an underemployment rate of 7.3 per cent for women. · The chronic effects of low income including the effect on family life and particularly children. · CCER's interest in social welfare and justice of employees while at the same time representing a major employer in New South Wales. · Ethical principles associated with determining wages, namely, dignity of the human person, subsidiarity, solidarity and common good and the application of those principles. 25 In relation to Principle 8(g) of the Commission's Wage Fixing Principles, CCER supported the approach proposed by the Minister.

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27 The Australian Federation of Employers and Industries ("AFEI") and its affiliated Associations, The Australian Retailers' Association, NSW Branch and the Restaurant and Catering Industry Association (NSW) (collectively referred to as the "Combined Employers") opposed the changes sought to award rates and the Wage Fixing Principles by both Unions NSW and the Minister, although in doing so, proposed that a moderate increase of $10.00 be made available, upon application, to State awards. 28 Mr Warren, appearing for the Combined Employers, tendered affidavits sworn by Professor Philip Lewis, Professor of Economics and the Director of the Centre for Labour Market Research at the University of Canberra; Mr Robert Goldman, Chief Executive Officer of the Restaurant & Catering Industry Association (NSW); and, Ms Julie Bradshaw, Policy and Employee Relations Officer for the Australian Retailers' Association. Mr Goldman and Ms Bradshaw were required for cross-examination. 29 In summary, the Combined Employers submitted: · The Commission should give prime consideration, when assessing the need for an increase in award rates, to the circumstances of the employers who will be affected by such an increase and the particular vulnerability of these employers, to increases in labour costs. · Any increase has the potential to have a significant impact on those employers who employ workers under NSW State awards in the private sector being primarily small, unincorporated employers in the retail and hospitality sectors. · The Unions NSW and NSW Government focus on aggregate economic data and the overall impact of the Unions NSW claim on the NSW economy is somewhat misplaced. · The principle focus, in economic terms, should be on the labour market characteristics of the affected workers and the economic performance of their employers. In stark contrast to the aggregate performance of the Australian economy, the hospitality and retail sectors growth in both output and employment has significantly underperformed and is forecast to remain subdued. · However, even if an aggregate NSW perspective is considered, the economic performance of NSW has not matched that of other States. · There are apparent sectoral splits within the economy, with some sectors at different points on the economic cycle, and not all reflecting the strong growth in the resources and allied industries. Slower growth appears to be particularly pronounced in the sectors which will be primarily affected by this State Wage Case, those being small retailers and the hospitality sector. In the retail sector, overall growth and profitability has been weak, and small retail business growth has lagged that of larger retailers. In the hospitality sector, profitability has declined as wages and other cost pressures have risen faster than revenue. The outlook for the hospitality industry is for growth to continue to struggle with the high exchange rate, weak domestic tourism and a tightening of discretionary spending being particularly influential, and a dampening effect, to the growth in this sector. · The capacity for the unemployed and low paid to obtain and remain in employment is a matter for the Commission to generally consider when having regard to public interest. Without the economic survival of vital areas of small business, such as retail and hospitality, the opportunity for employment, and it is often initial or start up employment, would be lost to a large number of young people. · The effect of any increase granted by this State Wage Case will largely have an affect on employees at the lower skilled sector of the workforce. The lower the skills of the employee, the more reactive employers are to changes in their wage levels. An increase in award wages is most likely to affect those in low skilled, low paid jobs. The impact of an award wage increase on total employment may be proportionately small but the impact on low skilled, low paid workers, and as a consequence on their employers, is disproportionately high. Further, the jobs which are likely to be most directly affected by this State Wage Case, are generally in labour intensive industries, with high labour costs as a proportion of total costs. In addition to the direct wage cost, award wage increases impose additional costs when rates are increased. These additional costs include workers compensation premiums and superannuation contributions. · Any award increase should be a flat amount so as to give maximum benefit to employees at the lowest end of wage scales. · The Commission should maintain the existing Wage Fixing Principle 8(g), in its current form, and thus continue to reflect the long held position of this Commission that State Wage Case adjustments are there primarily as a safety net for the lower paid employees on State awards. Australian Business Industrial and the Australian Industry Group

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We take the same view in the present proceedings. 33 Dr Gelber described calendar year 2006 as another "patchy year for the Australian economy". He said that whilst some sectors and States ran hot, continued weakness in housing markets, a severe drought, a mid-year slip in investment, pressure from rising prices (fuel in particular), interest rate increases and a high Australian dollar kept growth well below par. However, Dr Gelber believed the headline Gross Domestic Product (GDP) growth figure belied the strength of the economy. He said that mining, public sector infrastructure and non-dwelling building investment continued growing strongly and consumers remained resilient in the face of further rate rises, with sentiment bolstered by an acceleration in employment growth. 34 On the outlook for the Australian economy, Dr Gelber said: Growth will be more broadly-based through 2007, with consumer demand set to firm as the effects of the temporary spikes in petrol and food prices unwind. Healthy finances will underpin another year of strong public sector expenditure and easing capacity constraints will boost metals and minerals exports, although the external sector will remain weak as the drought will constrain rural production. 35 Dr Gelber also stated: · Investment will remain the key growth driver over 2007. · Employment growth is forecast to remain solid in the short term as the business expansion phase continues. Job vacancy numbers remain high and point to significant pent-up demand for labour. The capacity of businesses to hire new staff is also very strong because company profitability is high. · The drought will be a significant drag on growth through the first half of 2007. · Over 2007/08, a number of key growth drivers are expected to plateau, as investment growth peaks and world growth begins to slow. Together with an easing in the growth of consumer demand, as further rate rises erode disposable incomes, this will be sufficient to turn momentum in the economy more generally. · The combined effect of a broad-based easing in activity will be a slowing in domestic demand, with growth in Gross National Expenditure slowing to 2.5 per cent in 2007/08, compared to 4 to 4.5 per cent over the three previous years (2004/05, 2005/06 and estimated for 2006/07). · Despite the slowing of growth in domestic demand, headline GDP growth is expected to hold up reasonably well in 2007/08, supported by a strong positive external sector contribution. Flatter investment, higher levels of productive capacity, and a more subdued household sector will constrain demand for imports, while minerals and energy exports will show very strong increases, rural export volumes will rebound and an anticipated depreciation in the $A will increase the competitiveness of local manufacturers who had been unable to compete during the period of the high $A. Overall GDP growth is forecast to be 3.2 per cent in 2007/08, compared to an estimated 3.3 per cent in 2006/07 and 2.7 per cent and 2.9 per cent in 2004/05 and 2005/06 respectively. · Employment growth is expected to ease through 2007/08 and average 1.9 per cent, only slightly weaker than the 2.0 per cent per annum average growth experienced over the past 10 years. The current significant pent-up demand for labour will eventually ease as both new workers and labour-saving plant and equipment are fully employed and productivity increases finally flow through from the investment boom of the last few years. Slower growth in the domestic economy over 2007/08 will also act to reduce labour demand pressures. 36 In giving evidence for the Combined Employers, Professor Lewis did not consider it necessary to provide a comprehensive overview of the New South Wales or Australian economy but rather to provide a general background to the labour market issues. However, he did make the following generalised observations: · Australia has undergone over 15 years of sustained economic growth. This growth has been attributed to a number of factors including: the strength of the global economy, the resources boom, technological change, the impact of economic reforms made in the mid 1980s to early 2000s and improved economic management by government and the Reserve Bank. The reasonable outlook for the global economy indicates a continuing positive flow-on to the Australian economy. · The Australian Bureau of Statistics (ABS) National Accounts indicate that in the last quarter of 2006 the non-farm sector experienced growth of 1.4 per cent to record an annual growth rate of 3.5 per cent for the full year. The overall growth rate was diminished to 2.8 per cent by the fall in rural output of 22.8 per cent over the year. However, many economic commentators have referred to Australia as "a two speed economy" with a strong mining sector but other sectors performing below trend. · The apparent strength of the Australian economy is raising fears among some commentators of inflationary pressures and the possibility of higher interest rates. · The Reserve Bank of Australia has noted that the latest data on wages is at the "high end of the range of recent readings" and that they receive widespread comments from businesses that there are upward pressures on labour costs. These wages data do not yet include the impacts of the highest increase in minimum wages awarded by the Australian Fair Pay Commission in 2006. It would be expected that this large increase in minimum wages would have significantly impacted on labour costs, particularly in those industries employing people on awards. 37 The Joint Employers made similar observations to those of Dr Gelber and Professor Lewis about a "two speed economy": whereas capital expenditure as a proportion of final demand was historically high in the rest of Australia it was historically low in New South Wales. The submission noted the dampening effect of the drought on the Australian economy, but that conversely, employment was faring better than predicted at the time of the 2006/2007 Budget. Further, that national growth had been assisted by the historically high terms of trade but these could not be expected to stay at these levels. More recently, it was noted, there had been significant appreciation in the Australian dollar which would, so long as it persisted, impact on trade exposed sectors. 38 In its Statement on Monetary Policy issued on 4 May 2007, the Reserve Bank of Australia considered the performance of the Australian economy and its outlook. The Statement was generally consistent with the economic submissions put in the proceedings but provided more up to date information, which we believe it is appropriate to make reference to. At p 2 of the Statement the Bank stated: Recent data on economic activity in Australia have provided a more consistent picture of an economy where output and employment have been strengthening since around the middle of last year. Non-farm GDP is estimated to have grown by 3½ per cent over the year to the December quarter 2006, a result which has gone some way towards resolving the apparent conflict between relatively weak output and stronger employment growth reported earlier last year. Information pertaining to the most recent period, including business surveys, labour market data, and indicators of private spending, suggests that a good deal of momentum has been carried forward into 2007. The farm sector continues to be severely affected by the drought. At this stage the fall in farm output appears likely to reduce overall GDP growth in the current financial year by around ¾ percentage point. A return to more normal seasonal conditions in 2007/08 would see a significant recovery in farm output, but there remains a risk that this does not occur. ... Australia's lengthy period of expansion has brought the economy in recent years to a position of high capacity utilisation and tight labour market conditions. Unemployment has declined to generational lows, and a range of business surveys and anecdotal reports indicate that labour scarcity has increased. The tight labour market has contributed to some pick-up in aggregate wages growth over the past couple of years. Wages at the end of 2006 were growing at a rate that was at the top end of the range seen over recent years, though they did not appear to be accelerating further. Given the overall momentum in domestic demand and the prospect of some pick-up in exports, it appears likely that growth of the non-farm economy will remain relatively strong in the period ahead. While ongoing increases in labour supply and high levels of business investment will be adding to productive capacity, this outlook implies that the economy will continue to operate at a position close to full employment of available resources. 39 On labour costs the Statement said at pp 55-56: Strong labour market conditions have been associated with a pick-up in aggregate wages growth over the past couple of years. In addition, information obtained through the Bank's liaison suggests the total growth of labour costs may be running somewhat higher than measured wages growth, reflecting businesses' increased use of non-wage remuneration to attract and keep staff in the current tight labour market. The wage price index (WPI) grew by 1.1 per cent in the December quarter, and by 4.0 per cent over the year (Graph 76). Interpretation of recent wage data needs to take account of the change in timing of the minimum wage decision last year, with the increase in minimum wages becoming effective from December rather than June as in earlier years. As a result of this departure from the usual seasonal pattern, the data for the second half of 2006 understate somewhat the annual growth in wages. After adjusting for this effect, the growth of the WPI over the year to the December quarter appears to have remained in the upper end of the historical experience for this series, at around 4¼ per cent, compared with around 3½ per cent prevailing a few years ago. However, the pace is not significantly above that seen since mid 2005. ... Recent data for enterprise bargaining agreements (EBAs) should have been unaffected by the timing of the minimum wage decision. Adjusted for industry composition, the average annualised wage increase for federal EBAs certified in the December quarter was 3.9 per cent, around its average level of recent years. Overall, while these and other indicators continue to suggest that the pace of wages growth is running higher than the average seen over the past 10-15 years, there is little evidence of further acceleration in recent quarters. 40 On the outlook for inflation, the Reserve Bank stated at pp 57-58: The central forecast is for year-ended underlying inflation - which was around 2¾ per cent over the year to the March quarter - to fall back to around or a little below 2½ per cent in the next few quarters (Table 13). Headline CPI inflation is still expected to fall to a little below 2 per cent in mid 2007, largely reflecting the unwinding of the increase in banana prices that occurred during 2006. The recent appreciation of the exchange rate could contribute to some modest downward pressure on prices over coming quarters, although the experience from earlier movements in the exchange rate is that the effects on inflation have been relatively small and drawn out. The drought is not expected to have a significant effect on food prices in the CPI, although the longer it persists, the more likely it is that there would be some upward effect. Longer term, underlying inflation is expected to rise a little, to about 2¾ per cent in 2008 and 2009, with headline CPI inflation expected to follow a similar path. The forecast gradual pick-up in inflation reflects the expectation of firm growth in demand and output and that capacity utilisation in the economy will remain high. Ongoing labour market tightness is also likely to keep overall wages growth at a firm pace. Risks to these forecasts appear to be broadly balanced.

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41 After proceedings had concluded, on 8 May 2006 the Federal Treasurer delivered the Budget for 2007-08. The Budget served to confirm the tenor of the evidence in the proceedings that the Australian economy is in a generally robust state and the economic outlook is positive, despite some risks. The Budget has not caused us to take any different view to that which the evidence tendered suggests we should take. The Budget Papers described the economy thus: The Australian economy strengthened towards the end of 2006, despite the severe impact of the drought. This strength is expected to be sustained over the forecast period. Real GDP is expected to grow by 3¾ per cent in 2007-08, up from 2½ per cent in 2006-07. The forecast for 2007-08 reflects an assumed return to average seasonal conditions and a partial recovery from the drought, which is expected to add ½ of a percentage point to GDP growth. Strong growth in 2007-08 also reflects solid growth in consumption and business investment, a modest increase in dwelling investment and accelerating export growth. The Australian economy is adjusting well to the increasing global demand for mineral and energy resources, with a substantial reallocation of labour and capital currently underway. While mining production and export volumes have not yet grown significantly, reflecting the long lead times from mining investment to production, solid growth is expected from 2007-08. Over the past five years, the mining sector has invested around $55 billion to expand production. Prospects for the household sector have improved. While consumption grew modestly in 2005-06 and dwelling investment experienced a mild decline, growth is expected to strengthen in 2006-07 and 2007-08. This strengthening reflects the continued stimulus to household income and wealth from high commodity prices. Recent growth in household income reflects strong employment growth, which has accompanied a fall in the unemployment rate to 30-year lows and a rise in the participation rate to near-record highs. Employment growth is expected to moderate in 2007-08, and the unemployment rate is forecast to remain low. Overall wage pressures are anticipated to remain contained, while inflation is expected to moderate. The forecast moderation in inflation reflects a stabilising of automotive fuel prices, the recent unwinding of large rises in fruit prices experienced during 2006 and an easing in underlying inflationary pressures. The world economy is expected to continue to expand at a strong rate, with world GDP forecast to increase by 5 per cent in 2007 and 2008. The positive outlook reflects expectations for strong growth in China, India, Japan and the euro area. Growth in the United States is expected to ease in 2007, before strengthening in 2008. In the domestic economy, household consumption is expected to grow by 3½ per cent in 2006-07 and 2007-08. Strong increases in household income and solid growth in wealth are expected to support consumption and allow households to further consolidate their balance sheets. Recent strong increases in household income reflect strong employment growth and solid wage growth. Dwelling investment is expected to recover modestly after its recent mild fall, and grow by 2½ per cent in 2006-07 and 2007-08. Investment by owner-occupiers is expected to lead the recovery, with recent interest rate increases and low rental yields weighing more heavily on investors. An increase in rental yields is expected to encourage more investor activity during 2008. The level of business investment is expected to remain high, although growth is likely to moderate from its recent strong rates. New business investment is forecast to increase by 7½ per cent in 2007-08, underpinned by continuing strength in the mining and construction sectors. The investment environment remains favourable, although there is some evidence of capacity constraints in the construction sector with cost pressures and delays in obtaining labour and materials. Public final demand is expected to grow by 3¾ per cent in 2007-08, with strong growth in public investment and some moderation in public consumption growth. Net exports are expected to subtract ½ of a percentage point from GDP growth in 2007-08. Significant growth in non-rural commodity exports is forecast in 2007-08, while growth in other exports is expected to be modest. Rural exports are forecast to make some recovery following the drought, while elaborately transformed manufactures and services exports are expected to be constrained by the relatively high exchange rate and continuing robust international competition. Import growth is expected to remain solid over the forecast period, consistent with the higher exchange rate and the outlook for domestic demand. Recent strong import growth is the counterpart of strong growth in investment and incomes in the economy. The terms of trade reached their highest level in over 50 years in the December quarter 2006. They are expected to fall by 1½ per cent in 2007-08, reflecting anticipated falls in rural and non-rural commodity prices as global supply increases in these markets. The current account deficit (CAD) is forecast to widen to 6 per cent of GDP in 2007-08, with growth in import volumes forecast to outpace growth in export volumes, and export prices expected to fall. The anticipated widening in the trade deficit is expected to be partially offset by a narrowing in the net income deficit reflecting slower growth in corporate profits. From a saving and investment perspective, the expected widening in the CAD reflects expected higher investment and relatively unchanged national saving as a share of GDP. Employment growth is expected to ease to 1½ per cent in 2007-08, consistent with around-trend non-farm GDP growth and a modest rise in real labour costs. The participation rate is expected to rise to 65 per cent, while the unemployment rate is expected to increase modestly to 5 per cent in 2007-08. The forecast rise in the participation and unemployment rates partly reflects the new participation requirements for Disability Support Pension and Parenting Payment recipients, which are expected to result in more people entering the labour force. Wage growth is expected to remain solid at 4¼ per cent in 2007-08. While there have been localised wage pressures in those sectors most affected by mining and construction activity, overall wage pressures remain contained. Inflation is forecast to ease from 2¾ per cent in 2006-07 to 2½ per cent in 2007-08. Inflation is expected to temporarily fall below 2 per cent through the year to the June quarter 2007 as automotive fuel prices stabilise and fruit prices remain below the highs experienced in 2006. Underlying inflationary pressures are expected to moderate as nominal unit labour costs ease, reflecting improved productivity.

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Table 1: Major economic parameters Source: Australian Bureau of Statistics (ABS) cat. no. 5206.0, 6202.0, 6401.0, 6345.0 and Treasury. 43 The Budget Overview also addressed the risks to the economy: The risks confronting the Australian economy have become more evenly balanced in recent months. The risks are around the ongoing effects of the drought, the adjustment to the commodity price stimulus and the pace of household balance sheet consolidation. The drought is expected to have a significant adverse impact on the economy in 2006-07, with 2006 being the driest year on record across parts of southern Australia. The forecast strength in the economy in 2007-08 partly relies on the normal budget assumption of average seasonal conditions. The timing and distribution of rainfall has an important impact on the prospects for rural production and exports, and the economy more broadly. … A long period of economic growth has absorbed much of the economy's spare capacity. In particular, the economy is as close to full employment as it has been for over 30 years. There is evidence of capacity constraints in the construction sector, with some cost pressures and delays in obtaining labour and materials to complete projects. There is a risk that these factors will constrain output growth and place greater-than-anticipated upward pressure on prices and wages. Alternatively, productivity may be stronger than anticipated once the adjustment of the economy to the reallocation of labour and capital is completed, leading to stronger growth without additional price pressures. While the risks around consumption and dwelling investment have become more balanced, there remains uncertainty about the pace of household balance sheet consolidation. While household balance sheets are sound in aggregate, concerns remain about the vulnerability of a small proportion of highly-geared households to unexpected changes in interest rates and incomes. The outlook for the world economy remains positive, although a number of risks remain. These risks include a sharper-than-expected slowing in the United States, increased inflationary pressures, a substantial increase in oil prices, a greater-than-expected pick-up in financial market volatility, and a disorderly unwinding of global imbalances. While the current housing-led slowing in United States growth is expected to be mild, should the weakness become more broadly based this could have adverse implications for economies elsewhere.

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45 Understandably, there was a much sharper focus by all of the parties on the New South Wales economy than its national counterpart. Moreover, there was general agreement that New South Wales had been one of the weaker performing States in the "two speed economy". Dr Gelber expressed the opinion that the New South Wales economy had been underperforming in terms of growth relative to other States for several years but had a "relatively positive view" on the outlook for New South Wales over the next two years. He noted that New South Wales accounts for about one-third of national output, making it the largest State economy and that it was forecast to again under-perform the national economy and grow by 2.4 per cent in 2006/07. In his affidavit, on a more positive note, Dr Gelber deposed that: [W]e expect New South Wales to pick up momentum and outperform the national economy in 2007/08 with Gross State Product growing by 3.4 per cent. Aggregate demand remains strong, company profitability is high, key property markets are tight and the New South Wales business sector is currently running at a high rate of capacity utilisation, all of which are preconditions for a robust investment outlook. In this environment, New South Wales' relatively heavy weighting in services sectors of wholesale trade, finance & insurance and property & business services should perform well. 46 However, Dr Gelber said housing construction had been a major drag on economic growth in New South Wales over recent years. In addition, the current drought conditions would result in a severe cut in farm output in 2006/07. He assumed that the farm sector would be subject to average seasonal conditions in 2007/08, with the rebound in farm output adding to growth in 2007/08. 47 Dr Gelber considered industry sector reasons for New South Wales' under-performance and noted that industry structure had not been a major factor behind the poor performance despite the State having a relatively small resources sector. He said: NSW comparative growth performance has just been weak. NSW would have grown by 3.5 per cent a year over the past 5 years if NSW's industry sectors had grown at the pace of their Australian counterparts. NSW sector performance has been about 1.8 per cent a year below the Australian equivalent.

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48 Additionally, Dr Gelber stated: · Since the 2000/01 downturn in the New South Wales economy, there have been a number of broad drivers that have constrained New South Wales economic performance. These drivers include population and labour force shifts, the housing market boom and slump, differential commodity boom impacts and investment trends. · The main driver of the outflow of citizens to other States has been the differential between Sydney residential property prices and those prices in other major cities in Australia. When Sydney property prices rose faster in Queensland - and when combined with lifestyle considerations - the outflow of people from New South Wales grew substantially, reducing the growth potential of the New South Wales economy. While the price declines in Sydney during 2004/05 and 2005/06 narrowed the housing affordability gap, interest rate rises in 2006 have maintained the pressure on housing affordability, further reducing the demand for new dwellings, and consequently further reducing dwelling investment. · The investment performance of New South Wales compared with the rest of Australia has been comparatively weak since the 2000/01 downturn. The commodity boom has also underpinned a strong Australian dollar, which in turn has intensified competitive pressures in New South Wales import competing sectors, particularly tourism and manufacturing. The pressures on manufacturers have intensified under growing imports from China. For example, the textiles, clothing and footwear manufacturing sector in New South Wales is estimated to have contracted by 35 per cent over the past 5 years. · The fall in dwelling construction has had a major downstream impact on many domestically-focused manufacturers in New South Wales. However, the worst of the declines in dwelling commencements and overall dwelling investment are now behind us. Although a significant recovery in dwelling investment in the state is still some way off, housing construction is effectively close to the bottom of its trough. · The fall in dwelling investment since 2003 has been offset by a 23 per cent gain in other investment components. The biggest contributors to this growth were plant and equipment spending and engineering construction (both privately and publicly funded infrastructure investment), while non-residential building has had a smaller overall increase. Businesses are spending in order to ease emerging capacity constraints that have arisen as a result of a lengthy and now relatively mature business investment cycle. Capacity utilisation by businesses across both New South Wales and Australia is at historically high levels. 49 In terms of outlook, Dr Gelber said that the New South Wales economy was expected to continue to gather strength through 2007 after ending 2006 on an upbeat note. Gross State Product (GSP) was forecast to grow by 2.4 per cent in 2006/07, the strongest pace of growth since 2002/03. He said investment remained the key driver of growth, and expected total investment to continue to maintain its momentum after rebounding at the end of last year. He considered consumer spending should also be firm as the fall in petrol and fruit prices allowed households to spend more on other items. Consumers, he said, had demonstrated their resilience in the face of successive rate rises as income tax cuts, robust employment and wages growth had boosted incomes, helping to offset interest rate rises. Dr Gelber considered that low unemployment and a tight labour market had boosted consumer confidence, and this was encouraging consumer spending. However, he believed the drought would continue as a significant negative through the year and the lack of strong growth in exports combined with continuing strength in imports would weigh down on economic growth through 2007. 50 Dr Gelber expressed the opinion that a factor which would contribute to the positive outlook to the New South Wales economy over 2007/08 (and over the following two years) was the expected decline in the Australian dollar. He said the overvalued dollar of the last three years has negatively impacted on the competitiveness and performance of the State's key manufacturing and tourism sectors. It was expected that a significant decline in commodity prices from the second half of 2007 would cause a depreciation of the Australian dollar and that the fall in the dollar would boost the prospects for the tradeables sectors in the State, including the manufacturing, agriculture, tourism and hospitality industries. 51 Dr Gelber expected employment growth to remain firm over the next year to average 1.6 per cent in 2006/07 - the same as 2005/06 - and picking up to 2.1 per cent in 2007/08. He said the demand for labour would continue to remain strong in the face of capacity constraints, particularly for white-collar workers. He expected white collar employment to grow at an annualised pace of about 4 per cent over the next year in response to strong demand from the resource-rich States for IT, finance, insurance, business and property services. 52 In relation to employment in the goods distribution, tourism and hospitality sectors, including Wholesale, Retail, Trade and Accommodation, Cafes and Restaurants, Dr Gelber expected this to be underpinned by solid growth in household incomes, consumer spending, healthy business conditions and, later, a decline in the Australian dollar boosting the local tourism sector. Employment in this sector was expected to grow by around 1.2 per cent a year in both 2006/07 and 2007/08, compared with a decline of 0.3 per cent in 2005/06. 53 The outlook for manufacturing, however, was not so positive. Dr Gelber believed the drag on employment growth from the manufacturing sector was unlikely to disappear. It was forecast that manufacturing employment growth would decline by 2.5 per cent in 2006/07 and again by 0.6 per cent in 2007/08 compared with the average annual rate of decline of almost 2 per cent a year over the past five years. The high Australian dollar was a key driver of the decline, he said, by increasing the incentive for manufacturers to adopt labour saving technologies in order to increase their competitiveness. 54 Labour productivity growth was expected to outperform Australia in 2006/07 as Gross State Product recovered more strongly compared with employment growth. Labour productivity in New South Wales was forecast to grow 0.8 per cent in 2006-07 and by 1.4 per cent in 2007-08 with the pickup in economic activity over the next year or so in response to capacity constraints (mainly in coal transport infrastructure) being alleviated. However, Dr Gelber noted that despite the productivity recovery, labour productivity growth over the next year or two was expected to remain below the 20-year state average of 1.5 per cent. Minister for Industrial Relations 55 In his assessment of the New South Wales economy, the Minister submitted: · After growth in Gross State Product (GSP) of 2.2 per cent in 2005-06, the NSW economy was expected to accelerate marginally in 2006-07. Increased household income and spending, a recovery in housing investment and a recovery in export volumes were expected to lift growth. By the middle of the financial year, however, it became apparent that the impact of higher interest rates on the housing sector and the worsening drought would prevent any significant acceleration. · State Final Demand (SFD) is now expected to grow by 1.5 per cent in 2006-07, reflecting moderate growth in household consumption and public sector spending. After rising by more than 60 per cent in the four years to 2005-06, private business investment is expected to ease back, though remain at historically high levels in the current financial year. There was a marginal increase in dwelling construction in the December quarter 2006, but for the financial year dwelling investment is now likely to produce a negative result for the third consecutive year. GSP is now expected to grow by 1.5 per cent this financial year. · GSP growth in NSW will likely remain below the national average in 2006-07 reflecting the greater impact of higher interest rates on NSW, the burden of the drought and the more positive direct impact of the commodity price boom on other states. Nevertheless, the NSW economy should experience trend growth in employment and stable unemployment in 2006-07. To date in 2006-07, the labour force participation rate has risen to record levels, while the unemployment rate has remained at or near generational lows. · Despite faster employment growth in 2005-06, the growth of household consumption slowed from almost 3 per cent the previous year to less than 2 per cent, reflecting higher petrol prices, higher interest rates and the impact on confidence and wealth from declining house prices. Despite two further interest rate increases in August and November, household consumption accelerated in the first half of 2006-07. Continued growth in employment and wages and a reduction in income tax rates should boost consumer spending growth for the year. · A turn-around had been expected in dwelling construction in 2006-07 because population growth had started to lift, vacancy rates in the Sydney rental market had declined, and there was a lift in housing finance approvals. That has not, however, eventuated, with higher levels of interest rates through 2006 playing a central role. There was an upturn in dwelling investment in the December quarter, but another fall is expected for the year as a whole. The drop in 2006-07 is not expected to be as large as the 11 per cent fall in 2005-06. Housing investment is expected to recover from mid-2007, providing there are no further interest rate rises. · The easing back in private business investment in 2006-07 reflects in part the completion of a number of major infrastructure public-private partnership projects such as the cross-city tunnel, the M7 and the Lane Cove tunnel. After such strong growth over the last four years, however, even a modest decline in growth would leave private business investment at historically high levels which will continue to add to the State's productive capacity. · By industry sector, the contributors to employment growth in 2006-07 to date have been broad-based, including wholesale trade, health and community services, construction, mining, finance and insurance services, property and business services, cultural and recreational services, and communication services. On the other hand, there have been declines in employment in education, retail trade, hospitality services and transportation. Manufacturing employment has experienced the largest decline, impacted by the ongoing decline in housing investment and the higher exchange rate associated with the commodity price boom. · After rising by 3 per cent in 2005-06, Sydney CPI inflation is expected to continue to expand at around that rate in 2006-07, just below the national average. The spike in world oil prices and cyclone-affected agricultural prices led to large increases in the June and September quarters of 2006. While these have been unwound to some extent in recent quarters, in year average terms, the CPI will remain elevated in 2006-07 before slowing in 2007-08. Sydney's annual rate of inflation was 3.2 per cent in the December quarter, but lower prices for fresh fruit, petrol, and houses should drag the rate down in the second half of the financial year. · In the first half of 2006-07, the Labour Price Index (LPI, formerly the wage cost index) was 3.8 per cent higher than in the corresponding period of 2005-06. That was somewhat lower than wages growth in 2005-06 and reflected some slowing in wage growth in the public sector. For 2006-07 the rise in the LPI is expected to be about 4 per cent, in line with the expectation of no further tightening in the labour market. 56 Table 1 shows the 2006 Budget forecasts for the NSW economy in 2006-07 compared to the revised forecasts set out in the Minister's submissions in these proceedings: Table 2: Comparison of Forecasts for NSW Economy

See Re State Wage Case 2006 (No. 6) (2006) 153 IR 268 at [143], Table 4. ** Minister's submission, 2007 State Wage Case. 57 It may be seen that growth forecasts have been downgraded but that the other indicators have remained much the same. Combined Employers

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58 As we noted earlier, Professor Lewis did not engage in a comprehensive review of the New South Wales economy but rather addressed selected economic issues to provide a general background to the labour market issues. In this respect, Professor Lewis deposed that: · The New South Wales economy has been sending out mixed signals as to economic growth. For much of 2006 growth was sluggish but a spurt in state demand in the last quarter resulted in an annual growth rate of 1.8 per cent, 1 per cent below the national average and 6 per cent below Western Australia, the fastest growing state. NSW is one of the slowest growing states performing only better than Tasmania and the Northern Territory. · In all of the last three year growth of full-time jobs NSW has been lower than in the whole of Australia and, with the exception of the period 2005 - 2006, part-time employment growth has been lower for NSW than for Australia as a whole. Thus, the effects of the prolonged period of economic growth are not evenly spread across the states and territories of Australia. While the NSW economy is currently evidencing something of a recovery from the lower economic growth and employment performance of 2005, it is unlikely that it will reach the economic trend level of other states and its economic performance could remain relatively sluggish. · Different regions and sectors of the State are performing well below even the State average growth of employment. Between 2005 and 2007 Retailing has suffered a net loss in both full-time and part-time jobs at a time when employment growth for NSW as a whole rose by 3 per cent. The decline in full-time jobs in agriculture has been dramatic while in Accommodation, Cafés and Restaurants the switch from full-time to part-time jobs has continued despite the apparent buoyancy of the labour market. · The less than uniform extent of strength in the Australian economy is borne out by data on business growth and survival. Net growth of businesses (the difference between the number of businesses created and the number of existing businesses lost) in NSW has lagged that of the rest of Australia. In 2004/05 and 2005/06 the net growth was less than half that of Australia as a whole. Joint Employers

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59 The Joint Employers helpfully provided a detailed analysis of the New South Wales economy. The main points to be drawn from the analysis are as follows: · NSW has enjoyed some benefits from the terms of trade boost to the Australian economy. The positive effects include: the direct benefit to the resource sector in the state; the boost to incomes of shareholders (from increased dividends and share prices); the income tax cuts which have been financed out of the big rise in company tax revenues; and the spill-over of demand from WA/Qld for goods and services supplied by NSW businesses. · The offset from the terms of trade boost is that the rise in the $A, and the increased competitiveness of China and other emerging economies, have squeezed the profitability of many export and import-competing businesses in NSW, forcing many to reduce their output, close or shift offshore. That would be described by the Commonwealth Treasury as a necessary part of the "large adjustment required within the economy" but it nonetheless explains why, while many businesses are doing very well, there are also many businesses in NSW finding conditions difficult despite the apparent strength of the national economy. · The medium term projection for annual growth for New South Wales is more like 2¾ per cent and not 3¼ per cent as forecast by the New South Wales Treasury. · Sustainable employment growth of 1 per cent per annum seems reasonable. · The key features in the December quarter 2006 outcome for New South Wales were the much stronger outcomes for consumer spending, a continuing significant contribution from the public sector, while exports, housing and business investment continued to be weak. · The rate of growth in public sector spending has been only marginally below that in the rest of Australia and was about 1 per cent above the long-term growth in public spending for NSW of about 2.6 per cent. Over the medium term, the sustainability of this 3.7 per cent growth rate would be in question. It seems reasonable to expect the public sector to make a lesser contribution in the next two years. · The short-term picture for exports is clouded by the drought which had minimal effect on exports in 2006 but can be expected to cause export volumes to contract in the first half of 2007 and act as a drag on economic growth. Equally, while more normal weather conditions could be expected to boost farm output in the second half of 2007, that is likely to only translate through to exports in the first half of 2008. · The broad picture is that export growth prospects will rest heavily on the farming and mining sectors, with the lift in new investment in mining likely to boost exports in the next several years. Competitive pressures will continue to generally dampen prospects for manufacturing and service exporters. · Accounting for about 61 per cent of state final demand, consumer spending is clearly important to the state's outlook. The Reserve Bank's interest rate rises in 2006 are designed to slow demand, and it seems that despite this being an election year the Commonwealth Government is not inclined to give another round of substantial tax cuts which have been a contributing factor in the strength in consumer spending in 2006. While those policy stances are designed to slow the pace of consumer spending, it seems likely that jobs growth should sustain short-term prospects for consumer spending. However, while short-term prospects appear good, given potential growth in the NSW economy in the range of 2-3 per cent, the pace of growth experienced in 2006 does not appear sustainable beyond the short term. · Housing activity in NSW declined at a lesser rate in 2006 and appeared to be bottoming out in the second half of 2006. This has been the NSW economy's weak point. Housing has suffered a much sharper fall than was experienced in the rest of Australia, so a stabilizing in the position is good news. · Business investment in NSW contracted in 2006, with the December quarter level 10 per cent below that of a year ago. That weakness appears to be across the board with machinery and equipment investment down 10 per cent, new buildings (non-residential) down 7 per cent and new engineering construction down 23 per cent. For fiscal 2006/07 that points to a decline in private investment of the order of 10 per cent. · Investment is not at historical highs but is actually at levels below its long-term trend. At these levels, business investment is pointing to state growth running at or below trend in the medium term and will be a constraint on the NSW economy going forward. By contrast, for the rest of Australia investment is at the highest levels as a share of activity since the late 1980s, is significantly above the long-term average, and is consistent with a lift in productive capacity. 60 The Joint Employers acknowledged that the labour market in New South Wales has been performing quite strongly. It was noted, however, that total employment growth appeared to be running at about two thirds of the pace in the rest of Australia. The trend figures for March 2007 show growth of 1.7 per cent for New South Wales versus 3.3 per cent for the rest of Australia. It was submitted that growth in full-time employment was generally regarded as a better indicator of underlying conditions in the labour market. On that measure, it was acknowledged that New South Wales growth was still doing well with a growth rate of 1.5 per cent but the gap was wider with full-time employment rising at 4.0 per cent in the rest of Australia. 61 It was observed that New South Wales has shown faster growth of 2.3 per cent in part time employment. Male full-time employment registered growth of 1.4 per cent in the year to March 2007 whereas male part-time employment grew 7.4 per cent over the same period. In respect of unemployment the trend unemployment rate has hovered in the range 5-5½ per cent since 2004 and in March 2007, reflecting the good employment gains, had edged back down to 5 per cent. 62 In relation to wages growth and inflation, the Joint Employers submitted that recent comments on wages by the Reserve Bank indicate that the Bank may have "drawn a new, and more meaningful, line in the sand on wages at about 3½%". It was submitted that: While the Reserve Bank's inflation target is 2-3%, it clearly has a strong preference for inflation to be hovering at the mid-point of 2½% and is less concerned if it errs on the low side of that. The Reserve Bank is traditionally reluctant to be too specific about wage targets but the link it has made between the acceleration in the WPI and the acceleration in the underlying CPI inflation would also suggest that, to achieve its inflation objective, the Reserve Bank has an unofficial subsidiary objective to slow the rate of growth in the WPI to around 3½%. To the extent that wages growth continues to run ahead of that, it will be a factor putting pressure on the Reserve Bank to lift interest rates. Around that 3½%, the Reserve Bank would expect to see variation in wages growth, reflecting variation in demand/supply in segments of the labour market. At present, skills shortages indicate the likelihood of market pressure for some further increase in skill premiums. Allowing room for that variance, a rise in minimum wages of 3½% (for unskilled workers) would be inconsistent with average wages growth of 3½% and some market-driven variation in wages growth. To make reasonable room for some variance would require any increase in minimum wages to be less than 3%. In short, higher rates of growth in the WPI of more than 3½% are linked with unacceptably high inflation and are not sustainable and, for consistency and sustainability, increases in the minimum wage need to be less than 3%.

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63 New South Wales is not performing at the same level as some of the other States. Understandably so, given that it is the resources boom that is driving performance in those other States, that higher interest rates are having a greater impact on New South Wales and there is the burden of the drought. 64 The forecasts for New South Wales have produced mixed signals. On the one hand, Professor Lewis suggested that the economy was likely to remain relatively sluggish and on the other hand, Dr Gelber's opinion was that the New South Wales economy was expected to pick up momentum and outperform the national economy in 2007/08. Dr Gelber forecast GSP to grow by 2.4 per cent in 2006/07, the strongest pace of growth since 2002/03, but the Minister's forecast was that GSP would increase by only 1½ per cent for the same period. 65 What is clear is that the New South Wales economy has been somewhat sluggish and it seems to us the outlook for New South Wales is clouded by such considerations as the drought, interest rates and the impact of the Australian dollar, which is not heading downwards as foreshadowed by Dr Gelber but in the opposite direction, with implications especially for the State's manufacturing industry, which is experiencing strong import competition. 66 Nevertheless, the evidence does not suggest that New South Wales will continue performing below the level of the other States and no party suggested that was the case. On the contrary, there is reason for some optimism about the State's economic prospects. Growth is expected to lift a little as a modest recovery begins in the housing sector, and growth in household consumption lifts, while business spending remains at high levels. Mr Murphy for the Minister said in his oral submissions about the outlook for the New South Wales economy compared to last year's outlook: If anything, I think the outlook is a little more positive… Looking at the data as of today, we would say there is no economic factor that is so out of whack with what the Commission dealt with last year to warrant a different approach and a different outlook. I don't think anything has been demonstrated by those concerned for a different outcome. 67 Moreover, it must be recalled that the existence of an economic lag in New South Wales must be seen in the context that the State's economy represents a significant proportion of the national economy (one-third) and will inevitably be expected to reflect overall the future positive outcomes of the national economy.

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70 The Minister submitted evidence and material examining income and expenditure characteristics of low paid workers and households, emphasising the need to maintain a minimum wage at a level to avoid the development of a class of working poor. Similarly, CCER provided a powerful submission on the current economic situation for the low paid employee. 71 Unions NSW provided statements from Ms Haneetha Rothi Bar-Roka, apprentice beautician; Mr Stephen Bali, organiser with the Australian Workers' Union, Greater New South Wales Branch; Ms Helen Marcia Maguire, senior hairdresser; and, Ms Geraldine Elizabeth Smythe, housemaid/waitress to demonstrate the day to day challenges that employees on minimum award wages face. None of these statements were challenged. Minister for Industrial Relations 72 Turning first to the Minister's material, in relation to household incomes the main points made were that: · Based on the ABS Household Expenditure Survey 2006, the mean gross household income per week for those in the lowest and second lowest income quintiles is $752 and $1,091 respectively, compared to $1,212 for all households. · The average weekly expenditure of households in the lowest income quintile is $438.94 and $609.39 for households in the second lowest income quintile. By contrast, expenditure across all households is $947.51. When compared against income based on the minimum wage, currently $504.40, after expenditure on necessities there is little left over for those in the lowest income quintiles. · The most disadvantaged households are households in the bottom income quintile with no housing equity. Of those in the lowest and second lowest household net worth quintiles, 94.2 per cent and 49.4 per cent respectively rent, compared to 29.4 per cent of all households. In New South Wales the mean household net worth of the lowest quintile is $24,681, compared to $138,990 for the second lowest quintile, and $564,879 for all households. · Non-homeowners comprised 30 per cent of all Australian households but represented approximately three quarters of households experiencing severe financial difficulties such as going without meals, pawning or selling possessions, or seeking welfare assistance. Such circumstances jeopardise household stability and formation, as well as the well-being of children. Raising the minimum wage helps to ameliorate the pressures low income earners face when meeting essential and emergency costs. 73 On the issue of wage dispersion and income inequality, the Minister submitted: · The incidence of low pay for wage earners has increased from 14 per cent of the labour force in the mid-1990s to 20 per cent in 2003. · The incidence of casual and part-time work can in part explain widening distribution of income. Between 1990 and 2000 only one quarter of new jobs created required full-time hours, but of those, virtually all were filled by casual workers. Average earnings from full-time casual and part-time permanent or casual jobs have declined relative to full-time permanent earnings. · According to the Productivity Commission the majority of wage earners whose main income is earned from non-traditional forms of work (such as casual, labour hire and contract work) are located in the lowest income decile. For most families living below median income, the primary wage earner is employed in non-traditional work. · 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, the minimum wage compared with median earnings and Average Weekly Ordinary Time Earnings (AWOTE) for full-time employees has steadily declined. Without regular safety net adjustments which consider the minimum wage as a proportion of earnings generally, this inequity would be significantly exacerbated. 74 In relation to the characteristics of low paid employment, the Minister provided documentary evidence to support the following propositions: · Award reliant and low paid employment is concentrated in the hospitality, retail and service based industries. · 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. · Awards are the primary source of determining pay for almost a quarter of all female employees and of all female casual employees almost half are award reliant. By occupation, industry, and employment status, women are most likely to be concentrated in jobs affected by minimum wage regulation. · More than half the employees in the accommodation, café and restaurant industry (59 per cent) were casuals and that high proportions of casual employees were also found in the agriculture, forestry and fishing (49 per cent), retail trade (45 per cent) and cultural and recreational services (45 per cent) industries. Low skill jobs are associated with industries and occupations in which casual work is prevalent. · The two lowest skilled occupations employ the greatest proportions of casuals. Of all elementary clerical, sales and service workers 56 per cent were casuals, as were 47 per cent of labourers and related workers. By contrast, the lowest numbers of casual employees were found in the highest skilled occupations of managers (6 per cent) and professionals (13 per cent). · High rates of churn are associated with highly casualised industries with a low pay profile. Churn between low paid work and unemployment is prevalent, as is churn between non-traditional forms of employment. Low paid employment does not in general provide upward mobility or 'career stepping stones' to better jobs or ongoing employment. · The Productivity Commission has found that the 'stepping stone model' cannot be applied generally to the groups predominantly employed in low paid and casual jobs, and in particular to women who are married, people with a disability, and those who have spent long periods out of the labour market. · The concentration of certain types of workers in low paid industries and occupations is indicative of structural factors within the labour market. A reasonable increase in award rates of pay for these disadvantaged workers will help ameliorate their precarious labour market status. 75 The Minister also addressed the needs of vulnerable workers. In that respect, it was submitted that certain labour market groups were disproportionately represented among the low paid. Women, Indigenous, migrant, young, non-unionised workers, those employed in small firms, and workers with a disability were those most likely to be low paid. 76 In relation to female employees it was submitted: · Many forms of non-standard employment lead to low pay and women are most likely to be employed in these forms: see Buchanan, J and Watson, I 1997, A Profile of Low Wage Employees, acirrt, University of Sydney, pp. 10-11; Productivity Commission, 2006, The role of non-traditional work in the Australian labour market, research paper, May. · Non-standard forms of employment are strongly associated with industries and occupations with highly feminised workforces and which have a high dependence on awards as the primary means of setting pay. · In New South Wales 26.8 per cent of part-time workers sought full-time jobs in July 2005. More recent national data show that 61 per cent of underemployed part-time workers were women: see Australian Bureau of Statistics, 2007, Underemployed Workers, September 2006, 6265.0 · Women are more likely than men to trade off wages against conditions which help them meet their disproportionate caring, family and household responsibilities: see 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. · Almost 11 per cent of underemployed women workers cited unsuitable hours, difficulties in finding child care or other family responsibilities as the main difficulties they had encountered in finding work with more hours: see Australian Bureau of Statistics, 2007, Underemployed Workers, September 2006, 6265.0 77 The Minister submitted in relation to children: · Young people aged 15-19 years represent a significant section of the labour market in New South Wales, with a participation rate of 59.6 per cent in December 2006, of whom 68 per cent were employed on a part-time basis. It is estimated there are more than 150,000 young workers under the age of 18 years employed in New South Wales. · Overall, children's employment is concentrated in areas and occupations subject directly to a state award, or indirectly to a 'comparable' state award through the operation of the Industrial Relations (Child Employment) Act 2006. On this basis, almost all working children in New South Wales will benefit from a positive adjustment to minimum wages. · Young people's employment is concentrated in the retail trade, and accommodation, café and restaurant industries - industries which offer part-time and casual jobs and jobs requiring lower skill levels. · Young people's concentration in these industries and occupations means they are most likely to be casual and reliant on awards for their conditions and minimum wage increases to improve their pay. · Young people experience high job insecurity, low and underpaid wages, poor occupational health and safety, unsatisfactory working conditions and problems such as bullying and harassment. In combination, and in consideration of the factors outlined above, young workers are unlikely to hold the bargaining power to achieve conditions which assist them to balance their other responsibilities such as study, to achieve above award outcomes, or to ensure occupational health and safety training has been provided. · Positive adjustments to award rates of pay support young workers to continue to meet cost of living increases and protect against the need for young workers to increase hours of work to maintain their income in real terms. 78 It was the Minister's submission regarding Indigenous workers that: · Given economic well-being is largely determined by income and wealth, the difference between the income and wealth of Indigenous and non-Indigenous people is a major indicator of material disadvantage. Based on 2001 Census data, the median gross weekly equivalised income for Indigenous people was $282 compared to $500 for non-Indigenous people. · By these measures, it is clear Indigenous workers are structurally and socially disadvantaged in competition for employment. Their concentration in unskilled and low-skill work, and their significantly lower incomes compared to the non-Indigenous population suggest weak actual and potential individual bargaining power. A reasonable increase in award rates of pay will be of significant benefit to indigenous workers. 79 On the experience of migrant workers it was submitted: · The labour market success of migrants is largely dependent on personal attributes such as English proficiency, age, educational qualifications and previous work experience. Australia's migration program has two streams: a skill stream and a family stream. The participation rate of skill stream migrants was 65.5 per cent, compared to 50.5 per cent for family stream migrants. · Proficiency in English is a significant factor affecting migrants' participation rates. Migrants born in non-English speaking countries who were proficient in English had a participation rate of 66 per cent, compared to migrants with lower levels of English proficiency (37 per cent). · Family stream migrant and overseas born workers are overrepresented in sectors with low pay and limited security, in particular outwork and contract cleaning. Those most vulnerable are those with low skill levels and limited proficiency in English. · Many migrant workers are employed in non-unionised workplaces and are consequently deprived of opportunities to secure improved working conditions through enterprise bargaining. Accordingly this group of workers depend on reasonable award adjustments to keep abreast of cost of living increases. 80 On workers with a disability, the Minister submitted as follows: · The labour market experience of people with a disability is indicative of labour market vulnerability. Just over half of all people with a disability participate in the labour force compared with four in five people without a disability. The employment rate of people with a disability was considerably lower (49 per cent) than those with no reported disability (77 per cent). · The propensity of people with a disability to be looking for part-time work is higher than for those without a disability. It is important to note that the Productivity Commission last year found that there is no 'stepping stone effect' for people with a disability to ongoing employment from casual, part-time or other non-traditional forms of work. · On this basis it is evident that marginal and precarious attachment to the workforce is persistent for workers with a disability. These workers face high costs participating in work, including the cost of specialised transport arrangements and the potential loss of income from pension payments. The weak labour market position of this category of workers suggests the benefit of a real wage increase through the award system will positively assist these workers to meet their living and health needs. CCER 81 CCER submitted that the CPI figure issued by the Australian Bureau of Statistics ('ABS') did not accurately reflect the rise in expenditure by households with low incomes. The groups making up the basket of goods were weighted according to the proportions they represent in the average consumer's expenditure and then added together to create the overall measure of consumer good prices to produce the CPI. This method, it was submitted, masked the real increases in costs to low-income households. 82 CCER submitted: Some goods and services have experienced a much greater rise in price than others. For example ABS data from 1996-2006 shows that the price of fruit, vegetables and public transport have increased by 112 per cent, 70 per cent and 49 per cent respectively. Over the same time span, audiovisual equipment has decreased by 68 per cent, electronics by 14 per cent, and private cars by 19 per cent. While the CPI provides a certain measure of inflation over this ten year period, the impacts are significantly different for different groups who spend very different proportions of their income on different "baskets" of goods. These differences follow a trend that results in higher inflation for lower income households since the lower figures are associated with high technology products which compete globally with China's production but represent a lower proportion of low income family spending.

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84 As to transport costs it was submitted: · Transport costs have risen 3.7 per cent as reflected in the December 2006 Consumer Price Index. Taxi fares increased by 4 per cent in 2006. · Public transport fares disproportionately affect low income earners, as they generally have no access to private transport. The bottom 20 per cent of income earners account for 35 per cent of bus use. Furthermore, the increases in taxi rates hit low income earners harder because they are reliant on taxi services to make critical trips, such as visits to the doctor, which are inaccessible via other modes of public transport. · The burden of transportation costs becomes even greater in rural New South Wales, where there is little or no access to public transport. This is compounded by the fact that many key resources in rural areas are dispersed over large areas. Rural low income earners without private transport or access to public transport must pay large sums of money to make crucial trips. · The rise in public transport costs are higher than overall transport and therefore also represent a higher impact on low income households than others. 85 CCER submitted that remodelling the CPI for households living on the minimum wage was a complex procedure. However, CCER suggested that adjusting the proportion of the household basket for housing (rent and utilities), up to 30 per cent, and reshaping the housing group to exclude home ownership costs, and then adjusting other costs down proportionally, the CPI changes from 3.3 per cent to 5.2 per cent rise from December 2005 to December 2006. This figure does not include the latest projections of the rising cost of renting in New South Wales (9.8 per cent over the year to September 2006; expected to rise by 20 per cent over the next year, and the trend is expected to continue into 2008) nor the higher figures for transport. 86 Under the heading "Limits to Income", CCER considered poverty line models, in particular the Henderson Poverty Line and NATSEM models. It was submitted these models failed to consider factors that affect low-income families such as underemployment and the effects of poor social cohesion in areas where such families tend to live as they seek to minimise their rental costs. 87 In relation to underemployment, CCER submitted: · A major flaw in the unemployment rate and the belief that the weekly minimum wage in Australia is $504.40 is the misconception that an employed person is working 38 hours a week and has the opportunity to earn this entire amount. The Australian Bureau of Statistics considers any individual working at least one hour a week as employed. This means that someone who is seeking a job and found casual work is counted as employed despite the lack of any sustainable or viable source of income. · There has been a major shift towards part time workers in the past 20 years. In the 1960's less than 10 per cent of the labour force worked part time, whereas by February 2007, 29 per cent of the labour force was employed part time, the second highest rate in the developed world, only after Holland. Under current circumstances the ABS measurement of employment is not a useful standard for determining what proportion of the population is satisfied by the amount of work they have access to. · As of February 2007, the underemployment rate in Australia was 5.5 per cent. Underemployment includes people who are working casually or part-time while they seek more or better work. It also should include "the discouraged job seekers": those individuals who have been deterred from searching for jobs due to factors such as low pay, difficulties with transport and age. When adding discouraged job seekers to the underemployment and unemployment rates, an underutilization rate is produced which gives an estimate of the proportion of the labour force that has been unable to find the work they need. Currently, the underutilization rate in New South Wales stands at 11.7 per cent. This figure grows to 15-20 per cent of the labour force when individuals who are caught up in government programs which prevent or deter them from entering the labour force are included. · It is unrealistic to assume that all minimum wage workers will earn the full $504.40 each week. Some estimate that 48 per cent of net new jobs pay less that $300 each week and that there are 1.2 million wage and salary earners in financial crisis nationally. 88 In the case of women, it was submitted the hidden limits to income are even higher. CCER noted the underemployment rate for men was 3.7 per cent compared to an underemployment rate of 7.3 per cent for women. CCER contended that a large contributor to this difference was the difficulties mothers face in accommodating the demands of the workplace while managing parental responsibilities: Throughout the labour market, the 8 hour work day has generally been accepted as the norm for the past 150 years. It is often not only inconvenient, but impossible for a mother to schedule duties required of her as a mother around 8 hours of consecutive work each day. This forces mothers to work fewer hours, and often results in employers cutting certain benefits or pay to compensate for allowing the mother to work part time as if it were a luxury for the employee and burden for the employer. 89 It was further submitted that the situation for working mothers was exacerbated by the fact that the majority of mothers require access to childcare if they are to enter the labour force. This, it was submitted, had been empirically proven as increases in childcare costs have caused a decrease in workforce participation. This meant, CCER contended, that many mothers were only receiving a fraction of the $504.40 minimum wage per week while having to cope with the added burden of childcare just for the opportunity to work, reducing their actual income even further. 90 On the chronic effects of low income, CCER submitted that a major inhibitor in a low-income earner's social and economic mobility was the strict budgetary requirements they must live by just to survive and maintain a life at the poverty line. These restrictions prevented low income earners from accumulating any savings from week to week, making it difficult for them to gain access to resources that can enable a low income earner to improve his/her situation. It was contended that people without considerable savings are unable to take certification courses, access proper dental care, or even afford haircuts that employment counsellors recommend. Further, because their budgets were so restricted, low-income earners were not able to afford simple outfits or new clothes so as to avoid the stigma of being poor during the interview process, often causing employers to pass them up for applicants who presented better regardless of skills or experience. All of these were critical aspects, it was submitted, because they directly affect a person's ability to improve their employment opportunities. Additionally, even if a low-income earner had the opportunity to save some income, it was often spent on other costs related to medical emergencies that could stem from a poor diet that was followed because of the original budget constraints. 91 CCER stated in its submission that the longer a person was unemployed there were "run-on" effects, where their situation continuously worsened the longer they were unemployed due to decreasing savings, confidence, and out of date skills among other factors. Unemployed people also often faced a difficult decision when entering the work force, because the hours of work available to them may leave them making less money than they would if they were to remain unemployed and receive a full allowance from the government. These factors were all relevant, it was said, to determining the minimum wage because unskilled jobs that pay the minimum wage are often the only work available to these groups. 92 In relation to a number of the industries that were the focus of these proceedings, such as hospitality, retail and service-based industries, CCER submitted they have high rates of casual employment and low pay. CCER noted an increasing rate of turnover in these industries. Reference was made to the latest available ABS data (2002), which showed that in the hospitality industry, for the year to February 2002, 26.6 per cent of workers were new and 20 per cent of the workforce left the industry. It was submitted that high turnover rates were indicative of industries with low employee retention rates, symptomatic of lack of satisfaction and usually related to lack of training and career opportunities. 93 Additionally, it was submitted, people who had no choice but to live in low wealth communities were generally unable to create social connections within their own community due to the low trust given to people living in poverty even within impoverished communities. Such people were unable to improve their lives and opportunities by working within their community, whilst also being unable to access traditional networks such as informal childcare, or sharing resources as households; all resources commonly used by middle and high wealth communities. As receiving social services often carried a stigma, CCER contended that an effective way to aid these people in improving their situation was to improve the work opportunities and rewards that are actually available to them. 94 On family life, CCER noted that currently Australia boasts the second highest per capita GDP among the 17 Organization for Co-operation and Economic Development (OECD) countries, but also has the third highest child poverty rate amongst these same countries. Further, that the proportion of Australian families that have children and are living in poverty has been increasing since the 1980's. CCER submitted child poverty was a key run-on effect of poverty as it often caused children to lose motivation, suffer being stigmatised, and feel they cannot succeed because of the experiences of their parents. They often did not complete their schooling. This was a critical factor because it attributed to multi-generational low-income families.

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95 It was submitted that: Among the most frequent measures associated with child poverty are low income, housing and location. Low household income specifically has been demonstrated to have not just an impact on the economic well being of children, but also on their emotional and psychological development. Empirical evidence suggests that parental employment and higher income levels play a significant role in a child's development by setting an example of a good role model for the child. Low wages or being forced to budget around welfare payments have been shown to increase levels of parental stress, which has been associated with a decrease in the quality of care a child receives. Low income families frequently move, preventing children in these families from forming relationships in school or having positive and beneficial experiences in the class room, and often resulting in poor school attendance among these children. These aspects of child poverty are critical to the minimum wage debate because they are related to the parents' employment status and cannot be solved via transfer payments, or welfare options directly targeted at children. … Numerous studies have demonstrated that adequate childcare is crucial to early development of children, especially in areas like language and emotions. Furthermore, studies have shown that proper childcare has an even larger impact on the lives of disadvantaged children, including poor children. Despite the growing awareness of the need for access to quality child care, low income groups are losing access. Recent trends show that families have become increasingly less able to provide care for children via informal networks such as extended family or friends. This has forced low income earners to look for formal methods of care, and the lack of public supply has forced many to enter the private sector. During the same span of time that the shift towards formal childcare has occurred the cost of formal childcare has outpaced general inflation at an average rate of 7 per cent versus a rate of 3.3 per cent for the Consumer Price Index. Due to these trends, 30 per cent of low income earners now report financial stress in paying for childcare. There is also additional evidence suggesting that childcare costs hit single, low income parents the hardest because they are more reliant on it and pay more for it. Government assistance has been unable to help resolve this problem as the rate at which childcare costs are rising has increased to approximately 10 per cent per year following a brief decline in prices after the introduction of the Child Care Benefit (CCB) during 2000 and 2001. This means that the actions taken by the government to alleviate the burden of childcare has already been nullified by the rapid increase in childcare costs, and more pressure is put on the parents to earn more in the labour market. Unions NSW 96 Ms Haneetha Rothi Bar-Roka is an apprentice beautician who started her apprenticeship in February 2007. She is 18 years of age and her weekly wage is $336.72. Ms Bar-Roka's weekly expenses were $232.00 most of which was spent on food and clothing. She lives with her family. Her wages and employment conditions are determined solely by the Hairdressers' &c., (State) Award. Ms Bar-Roka said: It is difficult to negotiate with the employer since I have never done anything like this before. I would feel uncomfortable to negotiate with an older person and would not even know how to begin. This is my first job and was happy to be given an opportunity to work in an industry that I like. 97 Ms Helen Marcia Maguire is 61 years old. She is employed on a part-time basis as a senior hairdresser. Ms Maguire is engaged pursuant to the terms and conditions of the Hairdressers' &c., (State) Award and works 28 hours per week over 4 days. Her weekly wage is $550.21 and her weekly expenditure is $494.00 the bulk of which is food, rates, medical and motor vehicle expenses. Her wages and employment conditions are determined solely by the Award. Ms Maguire said it was difficult to maintain a meaningful standard of living on her current wage. Ms Maguire said it was "virtually impossible" to engage in a meaningful enterprise bargaining agreement with her employer. 98 It was Mr Bali's evidence that: The majority of employees that work in the Hairdressing and Beauty Therapy Industry are female (approximately 91%) with a large proportion being young or working mothers.

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101 Unions NSW submitted that its application for a 4.0 per cent increase in award wages was consistent with trends measured by recent wage movements calculated according to ABS data and research conducted by the Department of Employment and Workplace Relations and the Workplace Research Centre, associated with enterprise agreements in NSW and Australia. 102 Wage movements may be measured by a number of indices including Average Weekly Ordinary Time Earnings (AWOTE), Average Earnings on a National Accounts basis (AENA) and the Wage Price Index (WPI), which forms part of the Labour Price Index (LPI) survey (ABS Cat No. 6345.0). The WPI is designed to measure changes in wage movements, rather than levels, and unlike the AENA it does not incorporate non-wage costs. As Unions NSW submitted, the WPI is constructed measuring the cost of purchasing the same quantity and quality of labour input. Hence, the WPI is less subject to compositional change and, therefore, less volatile than other measures of wage movements. The WPI increased by 4.0 per cent for the year to December 2006. Over the same period the WPI for NSW increased by 3.8 per cent. For the year to March 2007 the WPI increased by 4.1 per cent. In New South Wales the corresponding figure was 3.8 per cent, unchanged. 103 Unions NSW referred to two sources of data for the wage trends in enterprise bargaining: the Trends in Enterprise Bargaining, series which is published quarterly by the Department of Employment and Workplace Relations (DEWR); and the Agreements Data Base and Monitoring Report (ADAM), published quarterly by the Workplace Research Centre. As it was noted, the main difference between the two series is that the Trends in Enterprise Bargaining report supported the average annualised wage increase (AAWI) per employee, whilst the Workplace Research Centre report measured AAWI increases per agreement. 104 The December 2006 issue of Trends in Enterprise Bargaining reported that the AAWI per employee for those agreements certified in the December quarter 2006, in all sectors, was 3.8 per cent. Over the four quarters to December 2006, the AAWI for agreements certified in each quarter had averaged 3.9 per cent. 105 In his evidence, Dr Buchanan referred to a report prepared by the Workplace Research Centre of the University of Sydney for Unions NSW regarding wage movements in New South Wales from 1996-2006. The report was based on the ADAM database. The key findings and arguments made in the report included:

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115 As the Minister observed in his submissions, any decision arising out of these proceedings will only impact directly upon those employees who are award reliant and work for unincorporated entities such as sole traders, partnerships and non-corporate trusts. 116 In terms of those employees who may benefit from any increase we grant the Minister estimated that 16.7 per cent or 555,500 employees are employed by unincorporated entities in the private sector in New South Wales (Australian Bureau of Statistics (ABS) survey of Employees, Earnings and Hours, 2006). It was submitted that the data further revealed that almost 23 per cent of all workers in New South Wales were award-reliant employees. Of these award-reliant employees almost one third or 7.4 per cent of all employees in New South Wales were employed by unincorporated entities within the private sector and reliant on awards. This equated to approximately 246,000 employees. 117 It was further submitted by the Minister that research undertaken by the Office of Industrial Relations estimated that approximately 24 per cent of award-reliant employees in New South Wales were employed under federal awards. Consequently, the actual number of employees who were reliant upon the State Wage Case for an increase in their weekly rates of pay was estimated to be between 187,000 and 246,000 employees. Such employees would be the direct beneficiaries of a State Wage Case increase. 118 In relation to the employers who may be impacted by the claim, the Minister referred to internal research by the Office of Industrial Relations from unpublished data supplied by the Australian Business Register, which he said indicated there were approximately 500,000 private sector employing entities based in New South Wales. Of these, 200,000, or almost 40 per cent, were unincorporated and would either remain in the New South Wales industrial relations system, or move from the federal to the New South Wales industrial relations system over the next five years. 119 The industry breakdown of employers of unincorporated businesses in New South Wales is detailed in Table 4, taken from the Minister's submissions:

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136 The Association also noted the recent increase in food costs of about 8.6 per cent as compared with a 3.4 per cent increase in the price of restaurant meals over the same time period. With no real capacity for employers in the industry to pass on costs, the Association contended this was another good reason not to increase wage costs irresponsibly. 137 In her affidavit, Ms Bradshaw deposed: The small businesses which remain in the NSW jurisdiction comprise of partnerships and sole traders, some of which are family owned and run businesses. The costs borne by these enterprises include significant personal costs and personal assumption of liabilities associated with the running of the business. 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. The small shopkeepers compete with larger retailers, most of whom do not operate within the jurisdiction of the NSWIRC. The small shopkeepers compete not only in the sale of goods but are at a disadvantage in negotiating set-up and running costs such as rent in shopping centres. In addition, the competitiveness and therefore viability of the small shops is affected by the economies of scale in terms of buying power, transport costs etc that are employed by the larger retailers. The failure rate amongst these small businesses is high. Each year around 10% of our small members go out of business, in recent years it has been closer to 15%. They will be hard hit by increases in Award rates that their competitors do not have to pay. A survey of NSW sole traders and partnerships has shown that many retailers are unable to sustain further wage increases however some have indicated that they will be able to sustain a moderate increase introduced in increments. The survey also shows that employment by these businesses is not increasing and for many, owners are working additional hours. Few retailers had increased their profits since the July 2006 increase to the Shop Employees (State) Award… The retail businesses which will be impacted by the State Wage Case are those which can least afford a wage increase. 138 Mr Gerard Dwyer, Branch Secretary-Treasurer of the Shop, Distributive and Allied Employees' Association, New South Wales Branch, challenged various aspects of Ms Bradshaw's evidence. Mr Dwyer deposed that the competitive challenges referred to by Ms Bradshaw were not matters which would have varied to any significant degree during the years of operation of the wage fixing principles made under the Industrial Relations Act. He said retail businesses had generally both competed and operated successfully over the past decade whilst paying an additional $163.00 per week for employees covered by the Shop Employees' (State) Award since March 1996. Mr Dwyer maintained that the New South Wales retail industry continued to grow albeit at a "moderate" pace: Australian Bureau of Statistics - Retail Trade February 2007 (Cat. 8501.0). 139 Mr Dwyer rejected the assertion by Ms Bradshaw that "[t]hey [the employers in the retail sector] will be hard hit by increases in Award rates that their competitors do not have to pay". He said it was "deeply misleading in that it fails to acknowledge that competing large retailers are already paying higher weekly base rates of pay". Mr Dwyer provided examples of the weekly wages paid by large retailers that exceeded the rate provided by the Shop Employees (State) Award by up to $74.20. 140 Mr Dwyer noted that there was currently a $7.36 per week differential between the minimum wage payable under the NSW Shop Employees' (State) Award compared to the Federal Pay Scale derived from that Award, which applied to a substantial number of incorporated retail competitors (including many New South Wales small retail businesses). This meant, he said, that New South Wales retail businesses employing shop assistants under the relevant State award were currently operating at a 1.3 per cent cost advantage on the weekly full-time adult base rate of pay compared to many of their competitors now covered under federal legislation. Mr Dwyer noted that this advantage had existed since 1 December 2006 when the Australian Fair Pay Commission awarded $27.36 per week to all full-time adult shop assistants engaged under the terms of the Notional Agreement Preserving the Shop Employees' (State) Award and paid the minimum rate in accordance with its relevant Pay Scale. 141 Mr Dwyer said in response to Ms Bradshaw's evidence that the retail businesses impacted by the State Wage Case decision could least afford a wage increase, that between May 1996 and May 2006 Average Weekly Ordinary Time Earnings (AWOTE) for full-time adult males had increased by 54 per cent from $716.00 to $1101.00 whilst AWOTE for full-time adult female employees increased by 57 per cent from $594.00 to $933.00. He said by stark contrast, the minimum weekly wage payable under the Shop Employees' (State) Award had increased by only 38 per cent from $407.80 to $562.80 during substantially the same period. Impact on employment

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Figure 2: Unemployment rate Australia: February 1997-February 2007 Source: Australian Bureau of Statistics Labour Force February 2007 Cat no. 6202.0 We note the latest unemployment rate for April was 4.4 per cent, seasonally adjusted. The fall has to be welcomed but, of course, it may have implications for interest rates and the Australian dollar. For New South Wales, the corresponding figure was 5.1 per cent, unchanged from March 2007. 144 Dr Gelber considered the impact of the claim from a microeconomic perspective - that workers affected by the wages claim might be "pricing themselves out of the market" if the claim were to be granted. First, he posed the question whether the wage increases would push up costs so much that the businesses involved (in the retail trade, accommodation, cafes and restaurants and health and community services, where award dependent workers affected by the claim are concentrated) make a loss, and are forced out of business. This, he said, would occur if the markets in which the businesses operate could not pass on higher wages in the form of higher prices. However, Dr Gelber contended that the recovery in consumer spending, stronger overall business conditions and an expected fall in the Australian dollar were expected to boost the retail trade and accommodation, cafes and restaurants sectors and that improved trading conditions should allow businesses in these sectors to increase prices within the Reserve Bank's 2 to 3 per cent inflation target band. 145 Secondly, Dr Gelber accepted that the capacity of businesses to pay higher wages often depended on their level of profitability and that in periods of tight labour markets (like the present), some businesses may need to take a cut in margins to retain the labour necessary to run their businesses. Profits, he noted however, as a proportion of national income, were at historically high levels. The converse of this was that the wages share of national income (defined as total compensation of employees as a per cent of GDP) was at historical lows. In respect of New South Wales, Dr Gelber referred to data showing the wages share was still well below the 52.0 per cent consistently averaged over 1989/90 to 2001/02. Accordingly, he believed there might be some scope to narrow profit margins. Other data produced by Dr Gelber showing profit margins for total Australian businesses also showed that margins were at historically high levels for businesses in the majority of industry sectors, including the retail trade. Reproduced below is Chart 18 from Dr Gelber's affidavit, "Profit margins by Industry Sector. Ratio of Gross Operating Profit to Sales".

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Figure 3: Wage and Profit Shares of Total Factor Income 147 The third part of Dr Gelber's microeconomic analysis regarding the possibility of workers 'pricing themselves out of the market' concerned overall wage relativities with other workers. In this respect Dr Gelber stated: The latest labour price index data (ABS cat. 6345.0) showed Australia-wide wage rates increasing 3.9 per cent (for ordinary time hourly rates excluding bonuses) over the year to December 2006. The growth in wages according to the labour price index has held in a narrow range around 4 per cent since early 2005… Meanwhile, growth in the more volatile average weekly ordinary time earnings (AWOTE) measure has eased over the past year, mainly become of compositional effects - stronger growth in employment of lower paid (i.e. less skilled) workers during 2006 has pushed down the overall AWOTE average. However, given the tight labour market and businesses bidding up wages both to retain and attract skilled workers, we expect the labour price index to rise toward (and slightly above) 4.5 per cent during 2007, driven by wage rises among the higher skilled workers. AWOTE should also rise back over 5 per cent as the negative compositional effects diminish. Accordingly, we expect the 4 per cent rise here for NSW award dependent workers in unincorporated enterprises will actually be below overall wage rises during 2007/08. 148 Dr Gelber's final point concerned the tightness of the labour market and the demand and supply of labour. The demand for labour was strong he said, unemployment was low and job vacancies were high. Dr Gelber deposed that solid output growth and demand for labour over the next year would keep unemployment low and provide good job opportunities. He said: The economic environment has fundamentally changed from that of the 1990s and early this decade when the unemployment created by the 1990s recession meant that the economy was operating with excess labour. It took 15 years to claw back the unemployment rate from 11% to 5%. Now, the problem is not the shortage of jobs, but the shortage of labour to fill them.

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149 In addressing the employment effects of an increase in minimum award wages, Professor Lewis said the imposition of such an increase affected only those in low skilled, low paid jobs. He said these individuals were, generally, very poor substitutes for the majority of the workforce and, therefore, award wages had little impact on the wages and employment of most workers. However, those workers earning just above the award wage were highly substitutable for those who would otherwise earn below the minimum. This was because although there was still a skill differential between them the jobs were still, relatively, unskilled. 150 Professor Lewis' opinion was that the imposition of a minimum award wage meant that firms would employ less of those who would have earned below the award wage and, therefore, unemployment among this group would rise. However, these workers are substituted by more workers earning just above the award wage. It was Professor Lewis' view that whilst the net effect on total employment may be difficult to detect there would be a large fall in employment of workers who could otherwise have earned below the award wage. He said minimum wages were all about distribution; jobs and income would be redistributed away from the worst off. In summary, Professor Lewis' point was that the impact of an increase in minimum award wages on total employment may be proportionately small but the impact on low skilled, low paid workers is disproportionately high. 151 Professor Lewis also addressed the issue of who might be at risk of unemployment as a consequence of any upward adjustment in minimum award wages. In that respect, the Professor deposed: · The unemployment rate is negatively related to level of education. For instance, for those whose highest level of education is Year 10 or less the unemployment rate is over 10 per cent. · About 55 per cent of the long-term unemployed have the lowest level of education. · The unemployment experience is far more serious for older workers than for younger workers. For instance, those unemployed in the 20 to 34 years old age group have been, on average in unemployment for 30 weeks. Those 55 years old and older have been, on average, unemployed for over 80 weeks. It is important to note that it is not just age which is important. The older unemployed tend to be less well-educated and more likely to be in jobs where skills demand is in decline. · Young workers will be particularly vulnerable to an increase in award wages, particularly those 15-17 year olds who will receive the state award wage under the Industrial Relations (Child Employment) Act 2006. · Raising the award wage lowers the employment of those workers with the lowest productivity, such as 15-17 year olds, and shifts employment to more productive workers, such as older students. The effect is to redistribute jobs and income from the less educated, who probably come from low income households, to the better educated, often middle class, students, or to older workers generally. Labour market participation

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152 Related to the employment issue is the issue of labour market participation. Dr Gelber expressed the following opinion: Labour supply conditions in New South Wales will continue to remain tight overall. The unemployment rate in New South Wales is expected to remain steady at around 5.2 per cent in the short term, before falling below 5 per cent in 2007/08 as employment growth outpaces labour supply growth. Additional labour supply has come from increased participation in the workforce. Participation in the labour force in New South Wales reached a record of 64.2 per cent of the civilian population aged 15 years and over in February 2007. Much of the increase in the participation rate has occurred in the past couple of years in response to higher interest rates and a reasonably firm labour market. We expect to see further rises in the labour participation rate over the next few years while job opportunities keep growing and labour market conditions remain tight. 153 The Minister's view was that: Maintaining a decent and fair minimum wage that reflects changes to wages more generally in society provides an incentive for people to look for work and participate in the labour market. A decrease in the minimum wage in real terms provides a disincentive to participate. The New South Wales Government believes that maintaining the value of the minimum wage as a 'living wage' will create an incentive to participate in the workforce and provide a barrier against exploitation. Should minimum wages deteriorate in real terms the unfortunate outcomes will be a growth in wage inequality and low pay and the potential to create a 'working poor'. 154 Professor Lewis had a different perspective on participation. He stated that most unemployment is due to lack of 'effective supply'. That is, given the current wage and institutional structures there are no jobs for which the unemployed are either willing to work or profitable activities which employers can find for them to do. 155 Professor Lewis said that what was required was a raft of policies which increased effective supply, not reliance on minimum rates as attraction wages. Such policies, he said, would involve long run commitment to raising education participation and achievement among the most disadvantaged Australians. Further, that: This is no small task involving considerable expenditure on education and social policy… plus widespread reform of social security, taxation and income support for low income households. However, supply side policies can only work if there are flexible wages. Conclusions regarding employment and participation rates 156 Whilst we respect the opinions of Professor Lewis regarding the risks of unemployment as a consequence of any upward adjustment in minimum award wages, we would observe that no real attempt was made to come to terms with the extensive discussion in the 2006 State Wage Case decision on the employment effects of the application for a 4 per cent increase considered in that case at [218] to [256] where at [256] the Full Bench found: 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. 157 Nor do we consider Professor Lewis' approach adequately rebutted the analysis of employment outcomes undertaken by Dr Gelber and the four factors identified by him as pointing against employment decline if the claim were to be granted. 158 Moreover, as the Minister submitted in the present proceedings: After a decade of safety net adjustments, if there was any foundation for the view that predictable minimum wage increases have a negative effect on employment it is reasonable to assume such outcomes would be reflected in the national economic framework. To date, no such effect has been demonstrated in the Australian context. Productivity

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159 Professor Lewis argued that increases in wages, particularly at the level of minimum rates could not be sustained at levels awarded while the economy was growing more strongly. Businesses need productivity growth to afford wage increases; without productivity growth there is a higher risk of inflation and job loss caused by wage increases that are not sustainable. He contended that businesses with a preponderance of low paid employees were more likely to be under commercial pressure to maintain their viability. Consequently, adopting a macro-perspective that productivity gains made elsewhere in the economy should be redistributed through wage increases, in firms without adequate capacity to pay those increases, was an approach that would hasten job loss in those firms. Professor Lewis said that the relevant focus should be the circumstances of those industries where workers are predominantly award dependent and their capacity to pay increases in the absence of any improvement in their productivity or growth. 160 Professor Lewis also said that another misunderstanding regarding pay and productivity was the view that low wages act as a disincentive to firms to invest or adopt more competitive behaviour. In this respect, Professor Lewis argued that it was the interaction of demand and supply in competitive product and factor markets that brought about economic efficiency including production at lowest cost. It was imposing prices other than market prices that resulted in inefficient production. He said this had been recognised by government at all levels - examples being reductions to tariffs, abolishing maximum interest rates on home loans, floating the Australian dollar, dismantling statutory marketing authorities and the replacement of centralised wage fixing by decentralised wage bargaining. Professor Lewis contended that: [T]he lack of competitiveness of many Australian firms in the most highly protected industries in the days of trade protection and the high costs of production of Europe's farmers today are clear examples of inefficiency due to authorities imposing prices on markets. 161 The New South Wales Workplace Industrial Relations Survey conducted in 2006 revealed 87 per cent of workplaces reported productivity had either remained stable or increased in the twelve months preceding the survey. As the Minister submitted, it is significant the survey revealed that almost half of all award reliant workplaces surveyed had reported productivity increases, compared to the average across all workplaces of 40 per cent, as shown in Table 6 below: Table 6: Profits, Costs and Productivity Source: New South Wales Workplace Industrial Relations Survey, Table A42 (Profits, costs and productivity) unpublished data. 162 The study also revealed that in traditionally award reliant industries where the majority of the workforce is female such as retail trade, health and education, and recreation and personal services, managers reported productivity increases higher than those reported generally across all other workplaces.

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163 There is no doubt that the impact of the claim of 4 per cent on the economy of the State would be minimal because it would only flow to somewhere in the order of 220,000 employees (taking roughly the midpoint of the estimates provided as to those affected) and even then a large proportion of the employees who would derive a direct benefit from a state wage increase are part time or casual employees. 164 The Combined Employers, however, contended that the focus on aggregate economic data and the overall impact of the claim on the New South Wales economy was misplaced and that the principal focus, in economic terms, should be on the labour market characteristics of the affected workers and the economic performance of their employers. It was submitted that in stark contrast to the aggregate performance of the Australian economy, the hospitality and retail sectors growth in both output and employment, for example, had significantly underperformed and was forecast to remain subdued. The evidence sought to highlight the competitive nature of the retail and hospitality industries and the cost sensitivity of those businesses with a high proportion of labour costs contributing to their total costs. 165 Employers generally, also expressed concern at the inflationary consequences of a large increase in minimum wages and the adverse impact of that on small businesses. 166 It was also contended by the employers that granting the claim would have a negative impact on employment amongst the low paid and on labour market participation. Workers with low skill, low levels of education, the long-term unemployed and young people, would be most affected. 167 Because of these considerations the employers contended that only a "moderate increase" in minimum award wages was sustainable and that translated into a flat increase of $10.00 according to the Combined Employers. 168 The Joint Employers' focus, in terms of the impact of the claim, was more directed to the capacity of the New South Wales economy to sustain it and they chose not to single out individual industry sectors for examination in the manner undertaken by the Combined Employers and in respect of which, it was argued, required special consideration because of their vulnerability to increases in labour costs. We have already determined, having regard to the overall state of the New South Wales economy, that there is capacity to accommodate a moderate increase without having adverse employment consequences and there is no need to take the issue further. 169 That leaves, essentially, the question of whether the industry sectors that were the focus of the Combined Employers' submissions should be treated differently in any consideration by this Full Bench as to what might constitute an appropriate adjustment to minimum award wages. 170 We have determined that no such different consideration is warranted for the following reasons:

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171 In the 2006 State Wage Case decision the Full Bench stated at [272]-[273]: There is substance in Unions NSW's 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. We expect that in a number of industries the problem of compressed relativities can be overcome at the enterprise level through over-award 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. 172 Unions NSW submitted that on this occasion a percentage, rather than a flat dollar increase in award wages, was appropriate, affordable and responsible. 173 Mr Thistlethwaite submitted that it was incumbent upon the Commission to ensure the continued relevance of awards by maintaining the relative value of award wages associated with the various classification structures in those awards; that it would be unfair to award another flat dollar increase and further compress the skill relativities in classification structures in awards. Further, that it was incumbent on the Commission under s 10 of the Industrial Relations Act to ensure wages and conditions in awards were fair and reasonable. 174 It was contended for Unions NSW that the overwhelming majority of employees subject to the State Wage Case decision lacked a capacity to enterprise bargain at their workplace. Continual flat dollar increases in their award wages was resulting in continued compression of skill relativities and the undermining of properly established skill based career structures within awards. This, it was said, was undermining the relevance and fairness of the award system in New South Wales. 175 No other party supported a percentage adjustment. Whilst the Minister also considered the maintenance of relativities to be important and was aware that a flat dollar increase may create compressions between award classifications, he submitted that the lowest paid workers had less bargaining power and were less likely to be able to negotiate over-award increases to their wages. Accordingly it was fair and appropriate to increase the minimum wage at a slightly faster rate for these lower paid workers than workers in higher skilled and higher paid classifications. 176 Mr Murphy submitted that the economic evidence showed that WPI for New South Wales was expected to be 4 per cent in 2006-07; that the proposed $20.00 increase represented a 4 per cent increase for the lowest paid classification, but constrained minimum wage increases for the remaining classifications to under the expected increase in the WPI.

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It is our submission that they [flat increases], for this particular award, do contribute to a deterioration in pay for an industry where there is a large proportion of women employed; a large proportion of women employed on an award basis rather than an enterprise agreement basis. 181 Mr Thistlethwaite referred to the evidence of Mr Bali that enterprise bargaining and overaward payments in the hairdressing industry were practically non-existent and so women were not able to overcome the compression of their relativity caused by flat increases through adjustments to overaward payments. 182 The contention by the Minister that higher paid classifications in awards are able to redress the problem of compressed relativities through overaward payments or enterprise bargaining is not necessarily so, given the example of the hairdressing industry. 183 An increase of 4 per cent would not have disadvantaged employees at the low end of award wage scales. An employee on the ARCR of $504.40, which 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, would receive an increase of $20.20. An employee classified at the top level of the Metal Engineering and Associated Industries (State) Award classification structure (C1(b)) would receive an increase of $42.00. 184 On this occasion, we would have been inclined to grant a percentage increase had it not been for our concern to avoid placing undue pressure on the State's economy if it were not to meet expectations in 2007-08. Such an eventuality, whilst unlikely, remains a possibility. That consideration, and the fact that all parties except Unions NSW supported a flat dollar increase, has tipped the balance in favour of a flat increase in 2007, but we do emphasise that the question of a flat versus percentage increase remains a live issue. A lessening in the economic performance difficulties in New South Wales next year may well create a proper environment to commence reviewing wage relativities in awards. AMOUNT OF INCREASE

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185 In these proceedings four proposals have been put forward as to what should be the outcome in terms of any increase to minimum award wages. The first, of course, is the claim by Unions NSW for an increase of 4 per cent. The second is the Minister's proposed flat dollar increase of $20.00. For their part, the main employer parties proposed a 'moderate' increase of $10.00. CCER proposed that a flat dollar increase of $27.00 in the ARCR was the most appropriate outcome to balance the needs of the low paid and that of employers, while supporting and growing the New South Wales economy. This amount of increase would bring the ARCR to $531.40 per week, which should, according to CCER, constitute a minimum award wage. CCER also submitted that as to other wage rates up to and including $770 per week these rates should be increased by the total of the CPI increases for June, September and December 2006. As for rates of pay above $771, CCER proposed that these be increased by a percentage that is in excess of the aggregate of the three CPI movements since the June 2006 quarter. 186 We have already decided that the increase will be in the form of a flat dollar amount. It only remains to be determined what that increase should be. As we earlier stated, a strong case has been made out for an increase in minimum award wages for the low paid. Their very difficult economic situation, their lack of bargaining power, the inequality that exists between general community wage levels and the wages of the low paid, and the obligation upon the Commission to provide fair and reasonable employment conditions, are matters that weigh heavily in favour of an increase that is pitched at a level that will provide real assistance to the low paid but which at the same time is economically responsible, having regard to the requirements of s 51 and s 146(2) of the Act. 187 There is little about the Australian economy that would require an especially cautious approach in determining an adjustment in minimum wage rates. On the contrary, the national economy is strong and the outlook is positive. The same cannot be said of the New South Wales economy with a high degree of confidence, although there are emerging signs of a pick up. However, despite the fact that the performance of the New South Wales economy is lagging that of the national economy, it was Dr Gelber's evidence that an increase of the order sought in the application was affordable both on macroeconomic and microeconomic grounds. That evidence accords with the economic submissions of the Minister. We also note that the New South Wales economy will necessarily benefit from the further growth forecast in the national economy. 188 In arriving at a determination as to what is an appropriate outcome in these proceedings, it is necessary that we strike a proper balance between the needs of the low paid and the capacity of the economy of New South Wales to sustain the increase. Given the strength of what was submitted by the Minister and CCER regarding the needs of the low paid, we consider there is an overwhelming case for increasing the ARCR by $27.00 per week. The ARCR 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. The sustainability of such an increase, both at the macroeconomic and microeconomic level, is beyond doubt given the relatively small number of employees who would benefit from such an increase. An increase of $27.00 brings the ARCR up to $531.40 per week. 189 Having regard to the balancing considerations, but in the light of our assessment of the State's economy, we have adopted a more conservative approach in fixing the level of increase in minimum award wages. In that respect, we have decided to increase minimum award wages by $20.00 per week. Relevant allowances shall be increased by 4 per cent. 190 In fixing the increases of $27.00 and $20.00 we have had particular regard to whether this may have a 'disemployment' effect of the nature described by Professor Lewis. We do not consider Professor Lewis' theoretical argument translated into evidence that as a consequence of the increases we propose to order there would be adverse employment consequences, even in what the Combined Employers described as "vulnerable industries", given the current economic conditions of high capacity utilisation, skill shortages, low unemployment, increased consumer spending and stronger overall business conditions. Nor do we consider that analysis has adequately dealt with our discussion of empirical studies in the 2006 State Wage Case or the factors operating against a disemployment effect as discussed by Dr Gelber. 191 There is one further matter we should refer to in the context of our decision to increase wages for the low paid. Professor Lewis in his evidence touched on the need to reform social security, taxation and income support for low-income households as an alternative to simply increasing minimum wages, but he did not take that consideration very far. No other party addressed the question other than CCER. 192 In the absence of any evidence supporting Professor Lewis' proposition or any evidence that social security, taxation and income support measures make it unnecessary, either wholly or partly, to address the needs of the low paid through increases to minimum wages, we are unable to take the matter any further other than to make a brief observation about CCER's submission. In any event, it would not be open to this Commission to abrogate its responsibility under the Act to fix fair and reasonable minimum wages on the basis of a speculative proposition that the needs of the low paid will be catered for through the reform of social security, taxation and income support for low-income households. 193 In relation to CCER's submission, we have had regard to the deficiencies in the current welfare and tax benefits for the low paid referred to by that organisation (and that any diminution of minimum wage adjustments by wage fixing tribunals may only exacerbate these difficulties, and, therefore, the plight of the low paid: see Saunders "Unleashing (Labour) Market Forces: The Social Policy Implications of Industrial Relations Reform" (2006) 29 (1) UNSWLJ 80.

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199 Mr Thistlethwaite submitted the State Wage Case Decision had no factors that could be considered in a Work Value or Equal Remuneration application. Accordingly, there was no valid basis for an employer claim that a decision of the Commission that granted wage increases as a result of Work Value or Equal Remuneration, warranted the absorption of future State Wage Case increases. 200 Unions NSW referred to the application by the LHMU to vary the Miscellaneous Workers Kindergartens and Child Care Centres (State) Award 2006 to give effect to the 2006 State Wage Case decision. It was noted that this Award was recently granted increases by a Full Bench arising from an application by the LHMU to vary the rates pursuant to the Work Value Principle and the Equal Remuneration Principle (Re Miscellaneous Workers Kindergartens and Child Care Centres etc (State) Award (2006) 150 IR 290). The increases ranged from $80.00 per week to $332.00 per week and were phased in over two and a half years. The wage rates of some classifications were not increased because on the evidence no change to the conditions of work was demonstrated. It was noted that certain employer parties had opposed the application to vary the Miscellaneous Workers Kindergartens and Child Care Centres etc (State) Award to apply the State Wage Case 2006 increases on the grounds that such increases must be absorbed in accordance with Principle 8(g). 201 Mr Thistlethwaite submitted: There was no general economic material before the Full Bench in those Equal Remuneration proceedings, nor did the employer parties to the proceedings raise any financial incapacity arguments. Nor could it have been the intention of the Full Bench to allow absorption of future State Wage Case increases, as the quantum of any future State Wage Case was not, and could not have been known at that time. Indeed it would surely have given rise to a robust objection by any employer group during those proceedings if the Full Bench admitted into evidence or relied upon in their decision any economic factors not part of the strict Work Value and Equal Remuneration test. … Unions NSW submits that new rates set by the Work Value or Equal Remuneration principles are 'properly fixed minimum rates' which address the historic failure of the award to address undervalued work. Accordingly, an award which receives increases under those principles should not be quarantined from future State Wage Case increases based on principle 8(g). If this were to be allowed there would be no mechanism for further adjustment of wages in the award and the real value of such workers award wages would deteriorate. Such an approach is not consistent with the Commissions statutory mandate to set fair and reasonable conditions of employment and is contrary to the objects of the IR Act. Further, there is authority from the AIRC which supports continued Safety Net Adjustments in the wake of equal remuneration or work value amendments to award rates (AIRC PR954938, 13 January 2004). If the history of the award allows the employers to place an impediment to the State Wage Case, then the very basis of the Equal Remuneration principle is undermined, by reviving that historic 'failure', for the purposes of reducing future rates. That situation would see the rates of pay return to their undervalued state. In Re. Equal Remuneration Principle, Re (Statement of Full Bench) [2000] NSWIRComm 116 particular workers at the lower end of the scale who received an $80.00 increase would effectively lose 25% of that increase if the application in respect to the 2006 increase fails, and a further 25% of that increase if a 2007 increase does not apply. Union NSW submits that the Commission is bound to act to prevent that situation arising. Unions NSW submits that is contrary to the public interest if rates which are increased through the application of the principles, via a properly arbitrated case, are then isolated from increases arising from the general economic increases available from a State decision, thus preventing those workers from maintaining their new wage in line with inflation and other economic factors.

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Employers who believe they have special economic conditions which will cause them to suffer financial adversity have access to the appropriate measures via principle 15 Economic Incapacity. Unions NSW submits that no worker in NSW should have their wage frozen without having to submit their case under principle 15. The proposed amendment to the Wage Fixing Principles will remove any doubt industrial parties have regarding the interaction between the Equal Remuneration Principle, the Work Value Principle and future State Wage Case increases. 202 Ms McManus gave evidence regarding the Social and Community Services Employees Award 2006 ('SACS Award'). It was deposed that: · There are approximately 30,000 workers employed under the SACS Award. · The SACS Award was made by a Full Bench of the Commission on 3 March 2006. · The Award provides increases in rates of pay of 3.5% operative from 1 July 2006, 1 July 2007 and 1 July 2008. The Allowances were also increased. · The increases referred to above were granted pursuant to the Work Value Principle as set out in the State Wage Fixing Principles. · The existing Wage Fixing Principles exclude access for workers covered by the SACS Award 2006 to any State Wage Case increases. · Pursuant to the WorkChoices legislation of 27 March 2006, a small number of NSW employers who are constitutional corporations became respondents to a NAPSA. · At the time at which these NAPSAs came into operation, the rates of pay contained therein were identical to the rates of pay contained in the SACS Award 2006. · On 26 October 2006, the AFPC increased the rates of pay for all employees in the Federal system. The rates of pay were increased by $27.36 per week for those earning less than $700 pw and $22.04 per week for those earning more than $700 pw. · In December 2006, the Department of Employment and Workplace Relations (DEWR) published rates of pay for all NSW SACS employees covered by a NAPSA. · The effect of the above changes is that the rates of pay for those persons who are employed by constitutional corporations and covered by a NAPSA are now greater than those persons employed by non-constitutional corporations and who remain within the State system. · Whilst the variations to the State Wage Fixing Principles sought by Unions NSW will ensure that this anomaly is resolved in terms of future adjustments, it is essential that any variations to the Principles allow for Unions to make application for retrospective payments of increases emerging from the 2006 State Wage Case. Should the Commission fail to do this then the discrepancy in wage rates will be perpetuated. In my view this will not be in the interests of workers who are subject to State Awards. 203 Mr Noel Quinn, Industrial Officer of the LHMU also gave evidence in support of the amendment to Principle 8(g). It is unnecessary to deal with all of that evidence here because the essence of it will be addressed in detail when we come to deal with the LHMU's application in respect of the Miscellaneous Workers Kindergartens and Child Care Centres (State) Award 2006 ('Child Care Award'). It is sufficient to note at this point that in Re Miscellaneous Workers Kindergartens and Child Care Centres (State) Award etc (2006) 150 IR 290 the Full Bench granted increases under the Equal Remuneration and Work Value Principles ranging from $80.00 per week to $300.00 per week to all child related classifications in the Award. The increases were to be phased in over five instalments on 7 March 2006, 1 September 2006, 1 March 2007, 1 September 2007 and 1 March 2008. The Award has a nominal term of three years, expiring on 1 March 2009. 204 The LHMU subsequently made application for the increase granted in the 2006 State Wage Case to be applied to the Child Care Award. Employers opposed the application on the ground, inter alia, that Principle 8(g) precluded such an increase. In his affidavit, tendered in the 2007 State Wage Case proceedings, Mr Quinn deposed: The employer parties have resisted all State Wage increases to this award since 1998 on the basis of principle 8(g) (or it's identical provision in previous wage fixing principles). The award has been increased every year since 1997, but only by a consent arrangement. This has seen the increase made in exactly the same quantum as the State Wage increase, but not as a State Wage application per se. This means that all increases have been via s.17 (3) (a) - a consent application, rather than the orthodox progress of a State Wage increase, s.17 (3) (b) - National or State Decision. The LHMU believes that the making of a new award as a result of the Equal Remuneration Proceedings in March 2006 gives it a 'new award' status, and should see the award restored to a position of having access to State Wage Case increases. For that reason no submissions were made during the proceedings on how future State Wage Cases should be treated. The LHMU therefore believes that the application is consistent with the Wage Fixing Principles (2006). The LHMU contends that the new minimum rates of pay fixed by the Full Bench in the Equal Remuneration proceedings may be built upon by the proper application of other principles, as awarded by the Commission. The LHMU believes the Wage Fixing Principles should be amended to remove the uncertainty surrounding future increases to awards such as the Miscellaneous Workers Kindergartens and Child Care Centres (State) Award 2006, and any future awards that may access the Equal Remuneration principle. For clarity the principles should state that once rates have been fixed by the application of 'strict tests', namely the Work Value principle and the Equal Remuneration principle, the award may receive future State Wage increases without impediment, as if it was a first award.

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Minister for Industrial Relations 206 On behalf of the Minister, Mr Murphy made the following submission in relation to Unions NSW's proposal to amend the Wage Fixing Principles: · Awards which have received increases exclusively under the Work Value Changes or Equal Remuneration Principles should not be automatically quarantined from future State Wage Cases, as they are under the current Principle 8(g). The purpose of awarding work value or equal remuneration increases is to bring employees whose work has been undervalued, either because of changes in the nature of the work, skill or responsibility, or because of historical gender based undervaluation, into line with comparator awards. · A situation where new rates for previously undervalued groups of workers, determined as a result of arbitrated proceedings under the Equal Remuneration Principle, would deteriorate over time if they are excluded from any minimum State Wage adjustment process is inequitable. Such an outcome is undesirable and inconsistent with the objective in s 3(f) of the Industrial Relation Act. · The New South Wales Government does not, however, agree that the broad amendment to Principle 8(g) put forward by Unions NSW is the most appropriate way to address this situation. · The decision to allow access to State Wage Case increases to awards which have received increases under the Work Value Changes or Equal Remuneration Principles is best made on a case by case basis by the Commission at the time of hearing the application for increases under those principles. A more appropriate way forward is to amend the Equal Remuneration and Work Value Changes Principles. · It is also appropriate that a similar mechanism be available in matters heard under the Special Case Principle. This would permit equal remuneration and work value cases, decided before the operative date of these proposed amendments to the principles, to be brought to the Commission as a special case to determine whether or not they should be subject to principle 8(g). · Principle 6 should be amended by the addition of a further clause (j) as follows: Principle 6 - Work Value Changes

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207 Counsel for the Combined Employers submitted that the Commission has not been moved to adjust wages on account of changes in work value in a vacuum. It was contended that the Commission would have been well aware of relevant State Wage Case adjustments when consideration was given to a final quantum wage or salary increase resulting from work value considerations. Mr Warren said that such work value considerations were made against a background of actual rates of pay paid in other awards of this Commission. Such awards were also made within the strictures of the Wage Fixing Principles: see Health Employees Medical Radiation Scientists (State) Award and anor [2006] NSWIRComm 34. 208 It was submitted that to now afford employees who had received, at times significant consideration, under an application of the Work Value, or Equal Remuneration, Principles would be to afford those employees, in retrospect, unjustified wage increases. This was particularly so, it was submitted, when the Commission in the past had noted that State Wage Case increases granted were done so in recognition of such increases being principally for the benefit of low income earners who may not have had the capacity to win proportionately greater increases by either work value adjustments or through direct negotiation with their employer. 209 Whilst the Combined Employers accepted that the Minister's proposals were an improvement on what was proposed by Unions NSW, they still disagreed there should be any change to the Principles. Joint Employers 210 The Joint Employers also opposed the proposed variation to Principle 8(g). After addressing the history of the Principle, the Joint Employers submitted: It is open to one or more parties to bring a special case to ascertain the position of wage increases which will come available under future State Wage Case decisions. The history of litigation suggests that there is some proper reluctance on the part of the Commission in anticipating what might occur in the future, but nonetheless in the right circumstances the commission might well determine that a particular award constitutes an exception to the operation of principle 8(g). In the case of industry settlements, which are often a form of industry bargaining, parties to special cases or consent arrangements are able to put their position regarding the period of the settlement and its fate. Principle 8(g) should not be amended to discourage sectoral bargaining without a proper examination of the issue. 211 However, Ms Paul indicated that the Joint Employers could accept the proposals put forward by the Minister regarding the amendments to the Principles. CCER 212 CCER agreed with the Minister in that it was not appropriate to amend Principle 8(g) in such a way as to create a broad right for any increase determined as a result of arbitrated proceedings under the Equal Remuneration Principle or the Work Value Principle but rather review this on a case-by-case basis. 213 CCER submitted that by allowing awards that have received increases under Work Value Changes or the Equal Remuneration Principles to be determined by the Commission on an individual basis, all factors relevant to the particular award could be considered. CCER supported amending the Wage Fixing Principles as proposed by the Minister.

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215 No party supported wholesale change of the Commission's Wage Fixing Principles. Indeed, despite the complete absence of any guidelines or rules in respect of wage fixing under the AFPC's mandate and a diminution of the AIRC's Principles, the impression we have from the submissions made is that all of the parties supported the retention of the Commission's Principles, with the exception of amendments relating to the proposal by Unions NSW in connection with Principle 8(g). 216 We acknowledge the potential inequity that may arise where, as a consequence of the operation of Principle 8(g), employees are precluded from receiving a wage increase granted in a State Wage Case because they have received increases under the Equal Remuneration and/or Work Value principles. The basis upon which wages may be increased under the Work Value and Equal Remuneration principles is in contradistinction to that which governs considerations in State Wage Cases. In work value cases the Commission is concerned with fixing rates of pay that reflect the work, skill and responsibility exercised by employees. Under the Equal Remuneration principle the Commission is concerned with whether the work, skill and responsibility required, or the conditions under which the work is performed, have been undervalued on a gender basis. State Wage Cases are essentially concerned with fixing fair and reasonable minimum award wages, having regard to the public interest, which includes the state of the economy and the circumstances of low paid workers. 217 Thus, wages under an award might be increased by $20.00 per week on the basis that the skill and responsibility exercised by a worker had been undervalued on a gender basis and without any consideration of factors that may have been relevant in State Wage proceedings or to the maintenance of the value of the wages. In such a case, the benefit of that increase may be set at nought if workers were deprived of a $20.00 increase granted on economic grounds in an ensuing State Wage Case on the basis that Principle 8(g) precluded such an increase. 218 Moreover, such increases may be awarded by reference to a counterpart award classification which is then subsequently moved by a State Wage Case adjustment not available to the group the subject of the award increase (so as to thereby immediately reintroduce inequities). 219 On the other hand to simply amend Principle 8(g), in the manner proposed by Unions NSW, overlooks the possibility that the Commission, in work value or equal remuneration proceedings may, directly or indirectly, build into any wage increase an amount that took account of economic considerations or there may have been other steps taken that preclude later increases arising from State Wage Cases. If that were the case, to apply State Wage Case increases may amount to double counting. 220 Accordingly, we propose to amend the Principles in the manner proposed by the Minister. We emphasise that by their terms the amended Principles apply prospectively; no retrospective operation will be countenanced. We do not intend, as proposed by the Minister in his submissions, to amend the Special Case Principle to permit equal remuneration and work value cases, decided before the operative date of these amendments to the Principles, to be brought to the Commission as a special case to determine whether or not they should be subject to Principle 8(g). We consider that is unnecessary given the terms of the special case Principle, which in our view already provides scope for a consideration of the problems highlighted by Ms McManus in her evidence and, in any event, to do so may create unjustifiable expectations. 221 There is one final matter concerning the Principles. Earlier we referred to some of the difficulties created by last year's AFPC decision for parties that remain subject to the coverage of State awards. We elaborate on those difficulties in the next part of our decision dealing with the Child Care Award. 222 Depending on what course the AFPC takes in its next decision, there is the potential for further anomalies or inequities to be created and which may impact on awards of this Commission. Accordingly, we have decided to give the parties, or any one of them, liberty to apply on reasonable notice in the event further difficulties arise in respect of State awards following the 2007 decision of the AFPC. The mere fact that the AFPC may grant a different increase in the Federal Minimum Wage to those awarded by this decision will not, of itself, be considered to have created an anomaly or inequity. Where the decision of the AFPC produces an anomaly or inequity in relation to one award only, it may be dealt with under the Special Case Principle. 223 The revised Principles are set out in Annexure A to this decision.

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224 The LHMU has made application to vary the Miscellaneous Workers Kindergartens and Child Care Centres (State) Award 2006 ('Child Care Award') to give effect to the 2006 State Wage Case Decision, which provided for an increase in minimum award wages of $20.00 per week. In making the application, the LHMU opposed having it joined to the application by Unions NSW in the 2007 State Wage Case proceedings. Unions NSW did not object to joinder, however joinder was opposed by the Joint Employers, the Australian Federation of Employers and Industries, CCER, and the Director of Public Employment ('DPE') who proposed that the matters be dealt with separately but within the time allocated for hearing the 2007 State Wage case. 225 As we earlier foreshadowed, we have decided to join the LHMU's application with the application by Unions NSW for a State Decision. The matters are closely connected. Indeed they overlap. The parties were advised at the outset of proceedings that the Commission had ruled that the evidence in one matter would be evidence in the other. Applicant's case 226 The LHMU's application was made pursuant to s 17(3)(b) of the Industrial Relations Act and was advanced on the basis that the rates of pay in the award are new minimum rates of pay, which were last varied by the Full Bench in Re Miscellaneous Workers Kindergartens and Child Care Centres etc (State) Award (2006) 150 IR 290 ('the Award Proceedings'). Accordingly, it was submitted, employees should not be denied increases that arise out of the general economic factors taken into account in State Wage Case decisions. 227 The applicant's evidence consisted of an affidavit of Mr Noel Quinn, Industrial Officer with the LHMU, and to which we earlier referred. 228 The LHMU contended that whilst the Wage Fixing Principles did not expressly provide for State decisions to be available to awards following Equal Remuneration Proceedings, it was clear that the Principles and the Act intended for this to happen. It was submitted that the Equal Remuneration Principle operated to redress historic undervaluation of work and wages. The Union submitted that it would be an inconsistent application of the Principles if increases awarded following arbitration under the Equal Remuneration Principle could be "taken back to their undervalued state by disallowing future economic increases." 229 The Child Care Award has a history of difficulty with the application of increases arising from State Wage Cases but the immediate issue has its origins in a decision of the Full Bench in the Award Proceedings where the Full Bench granted increases ranging from $80.00 per week to $300.00 per week to all child related classifications in the Award. The increases were to be phased in over five instalments on 7 March 2006, 1 September 2006, 1 March 2007, 1 September 2007 and 1 March 2008. The Award has a nominal term of three years, expiring on 1 March 2009. 230 The application giving rise to the decision of the Full Bench was made by the LHMU in 2004 under the Equal Remuneration and Work Value Principles. Two non-child related classifications of 'Support Worker' and 'Support Worker Qualified Cook' were not granted increases, the Full Bench finding that undervaluation was not made out on the evidence in respect to those two classifications. 231 The Full Bench decision found that the workforce had been historically undervalued and had never had properly set rates reflecting the value of the work. The Full Bench also found that a gender pay gap existed from the conception of the industry and awarded a pay increase intended to redress that undervaluation. In granting the increases the Full Bench stated: 198 This aspect of the proceedings concerned child care workers, co-ordinators and authorised supervisors, not support workers.

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344 We have determined that rates of pay must be significantly increased for child care workers and the various promotion positions, having regard to the proper value of the work in question. 232 Mr Quinn for the LHMU submitted: There can be no doubt that the Full Bench found that workers under this award were undervalued for some time. It can be properly inferred from that finding that all methods of fixing wages in this award prior to 2006 had failed to address the undervaluation of those who worked under it. Principle 8(g) is designed to essentially prevent double dipping - receiving wage increases through both industry negotiations and then further through the State Wage Case. The LHMU submits that employees would not be double dipping in respect to their wages, when the evidence so clearly demonstrated that whatever methods or settlements were used prior to 2004 to set rates, they did not provide fair and reasonable rates of pay. The LHMU submits that State Wage increases should not be absorbed against those old rates nor the Equal Remuneration increases. 233 Mr Quinn noted that the employers had opposed the application essentially on two bases: · The employers claim that the Commission had taken future State Wage Cases into account when setting the increase in the Equal Remuneration decision. The employers claim that the phasing in of the increase should be viewed as incremental increases over the nominal life of the award and no further increases should apply. · As a secondary objection, the employers again invoke principle 8(g) stating that the recent increases are not Safety Net, State Wage, nor Minimum Rates adjustments, and again prevent the current State Wage Case increase from being available. 234 The LHMU rejected those contentions. It was submitted, first, that the economic material put before the Full Bench in the Award Proceedings was specific only to the childcare industry or to particular child care centres operated by witnesses giving evidence. It was contended that the Full Bench made no mention of general economic factors in making its decision and in any case, it was implausible to suggest that the Full Bench had any way of anticipating the outcome of the 2006 State Wage Case which had not even commenced hearing when the Full Bench awarded the rates. Moreover, it was submitted that the phasing in of an equal remuneration increase should not be interpreted as incremental or prospective pay increases replacing State Wage Case increases. 235 In any event, Mr Quinn submitted that both the 'Work Value' test and the 'Equal Remuneration' test were 'strict tests' and that they did not allow other wage fixing criteria, including general economic factors, to be considered. 236 As to the second of the employers' objections, Mr Quinn submitted that whilst the Wage Fixing Principles did not expressly provide that awards should have State Wage Case increases available to them following equal remuneration increases, it followed that if economic increases did not flow to workers under these awards they would quickly slip back into the undervalued status they came from. 237 In conclusion, Mr Quinn submitted: It is clear that the statutory purpose of the Equal Remuneration principle is to provide a lasting remedy for undervaluation. Indeed the Wage Fixing Principles have only a beneficiary purpose in mind for the awards it regulates. It is totally inconsistent with the principles and the Act to freeze a wage that has been increased to remedy long standing gender undervaluation… The LHMU contends that the Commission should act to both prevent and eliminate discrimination in rates of pay and protect the real value of the increase awarded in 2006. The Commission should adopt the principles of Walton J, quoted by McKenna C in her decision in the Equal Remuneration Principle Case… and expunge the history of the award to allow it access to future economic increases, and grant the application for the 2006 State Wage increase to all classifications in the award. The union seeks that this increase applies on and from the first anniversary of the making of the new award, being 7th March 2007. The reason for seeking this retrospective increase is that the history demonstrates a number of delays in securing safety net increases for workers under this award… The employers have been on notice since December 2006 that this application was on foot and at various times have offered compromise positions which would see the full amount of the increase applied. The LHMU therefore submits that no employer will be disadvantaged by the backdating of the increase to 7 March 2007. ABI submissions

[150]

· It was open to the LHMU to apply in the State Wage Case 2006 to vary Principle 8(g) to include Equal Remuneration and Work Value Changes. It did not make any such application. · It was open to the LHMU to include in its application in the Award Proceedings a claim for State Wage increases, which it did not do. · The LHMU should have been fully aware that the employers would not consent to any subsequent application(s) for State Wage Case increases, based upon s 17(3)(b) of the Industrial Relations Act. This was because the Union was aware of the employers' previous opposition based on the operation and effect of Principle 8(g), in relation to previous applications for State Wage Case increases between 2001 and 2005. · The AQCCC agrees with CCER that whilst the Full Bench in the Award Case took into account the Equal Remuneration and Work Value Changes principles when making their decision, they did not expressly state that such principles were their sole consideration in doing so. · It is not correct for the LHMU to conclude that the employers' objection to its previous, and current, applications for a State Wage Case increase being made to the Child Care Award, based upon the operation and interpretation of Principle 8(g) is "improper and disingenuous". The employers have repeatedly made it plain to the LHMU that this Principle cannot be ignored for convenience sake. Previous applications for the State Wage Case increase to be passed on were resolved by the employers agreeing to such increases under s 17(3)(a) as opposed to s 17(3)(b) of the Act. That is, the employers were not opposed to employees receiving such increases per se, but they were opposed to the LHMU applying to do so irrespective of the operation of Principle 8(g). Hence, such applications were resolved by mutual consent. · If this Commission were mindful in the 2007 State Wage Case to consider amending Principle 8(g), the AQCCC would prefer the NSW Government's position as opposed to that of Unions NSW, and it agrees with CCER that the NSW Government's position allows greater flexibility to take into account a broader range of issues when considering such future increase, and not otherwise arbitrarily ignoring the history of the award in question. · If the Commission is mindful of making any such amendment to the Award, that it should operate prospectively not retrospectively in the usual course. In such circumstances, the LHMU's current application in these proceedings for an increase pursuant to the State Wage Case 2006 should be dismissed. · In respect of the AFPC's decision in October 2006 to increase the Federal minimum wage by $27.36 per week for employees earning less than $700 per week and by $22.04 per week for employees earning $700.00 or more per week, and as to how this Commission takes this factor into account in relation to the LHMU's application, the AQCCC agrees with the submissions made by the CCER. · AQCCC would support an increase for the classifications of Support Worker and Support Worker (Qualified Cook), that being a sum equal to the State Wage Case increase, but not on the basis of the LHMU's claim pursuant to s 17(3)(a) of the Act. Submission of Director of Public Employment 250 Under section 129 of the Public Sector Employment and Management Act 2002 the Director of Public Employment ('DPE') is the representative employer in this matter of child care workers in the Department of Education and Training. The Department is part of the Public Service. 251 In his submission, the DPE noted that the decision in the Award Proceedings stated that some wage rates were adjusted in accordance with the Equal Remuneration Principle ([199]) and the Work Value Principle ([184] and [344] of the decision). It was submitted that the decision did not indicate that economic adjustments for 2006 or any other year during the life of the Award and the phasing in of increases, were taken into account when determining the wage rates.

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262 The application by the LHMU to vary the Child Care Award to give effect to the 2006 State Wage Case decision is made under s 17(3)(b) of the Industrial Relations Act. That provision is in the following terms: (3) An award may be varied or rescinded in any of the following circumstances only: ... (b) at any time to give effect to a decision of the Full Bench of the Commission under section 50 or 51 (National and State decisions) … 263 The application is to be considered in the context of the Wage Fixing Principles determined in the 2006 State Wage Case. That then gives rise to the problem of Principle 8(g) of the Commission's Wage Fixing Principles, which provides: (g) The State Wage Case adjustment will only be available where the rates in the award have not been increased, other than by safety net or State Wage Case adjustments, or as a result of the application of the Minimum Rates Adjustment principle, since 29 May 1991. 264 There is nothing ambiguous about the terms of Principle 8(g); if rates of pay in an award have received an increase, other than by safety net or State Wage Case adjustments, or as a result of the application of the Minimum Rates Adjustment Principle since 29 May 1991, the State Wage Case adjustment is not available. 265 The Child Care Award was, of course, varied in 2006 to provide for significant increases in rates of pay under the Equal Remuneration and Work Value Principles, thereby precluding, by virtue of Principle 8(g), any further adjustments as a consequence of a State Wage Case decision. 266 The Wage Fixing Principles, however, also provide for claims to be dealt with as a special case under Principle 10, which provides: 10. 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. 267 Despite the Special Case Principle being the obvious, indeed the only, vehicle by which the LHMU's claim could be properly considered by the Commission, for some reason that has not been satisfactorily explained to the Full Bench the LHMU has refused - and it would appear wilfully so, in light of the tacit invitations by the Full Bench - to use the Special Case Principle and pressed for its application to be dealt with in the manner described under s 17(3)(b) of the Act. 268 We do not propose to grant the application as it is presently framed. To do so would not only be inconsistent with the revised Wage Fixing Principles but it would also be in complete disregard of the existing longstanding rules applicable to wage fixing in this State. To grant the claim on the basis of the Union's application would mean placing an interpretation on Principle 8(g) that the plain words of the provision do not bear and which may create unwarranted expectations in respect of other awards. We do, however, wish to make a number of observations about the merits of the claim and the course that should be adopted in relation to it. 269 In the Award Proceedings, the Full Bench was satisfied that the evidence established work value change sufficient to satisfy the requirements of the Work Value Principle, in relation to child care workers and coordinators but not support workers: see [184]-[197]. In relation to child care workers, co-ordinators and authorised supervisors the Full Bench was satisfied that consistent with the Equal Remuneration Principle, a case of undervaluation on a gender basis was made out on the evidence: see [198]-[220]. The Work Value Principle, subject to certain conditions, provides for wage increases where there have been changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. The Principle does not countenance any other test, including prospective economic considerations. 270 Similarly, the Equal Remuneration Principle provides, inter alia: (a) Claims may be made in accordance with the requirements of this principle for an alteration in wage rates or other conditions of employment on the basis that the work, skill and responsibility required, or the conditions under which the work is performed, have been undervalued on a gender basis.

[161]

(d) The application of any formula, which is inconsistent with proper consideration of the value of the work performed, is inappropriate to the implementation of this principle. 271 There is nothing in the decision of the Full Bench in the Award Proceedings to indicate that it had regard to any factors other than those prescribed by the two Principles, neither of which require prospective adjustments determined in State Wage Cases to be taken into account in determining the amount of increase that should be awarded as a consequence of an increase in work value or an undervaluation of the work on a gender basis. 272 It was contended for the employers that it must be assumed that the Full Bench in the Award Proceedings, had knowledge of, and gave consideration to, the effects of the whole of the Wage Fixing Principles then in force, including Principle 8(g). In other words, the decision to grant increases under the Work Value and Equal Remuneration Principles was made in the knowledge that Principle 8(g) precluded any further adjustment to wages under the Child Care Award as a consequence of a State Wage Case decision but the Full Bench made no separate provision for this. Therefore, as the argument went, the Full Bench intended Principle 8(g) to apply in its terms. 273 What was submitted by AFEI in this respect may well be correct in some cases, but it is clear from the comments of the President and Schmidt J, to which we referred earlier, that the Full Bench did not, in the course of the substantive Award Proceedings, give any consideration to whether future State Wage Case increases would be absorbed into the increases granted in the Proceedings because the matter was not raised in the substantive proceedings. Moreover, no evidence was placed before the Full Bench in relation to economic adjustments and their absorption or otherwise. We are satisfied the Full Bench did not take such factors into consideration, either directly or indirectly, when making its decision and determining the amounts of wage increase. 274 In fixing rates of pay under the Work Value and Equal Remuneration Principles the Commission is required to do so under the umbrella of s 10. That is, to fix fair and reasonable conditions of employment which, of course, includes wage rates. The same overriding injunction applies in fixing rates of pay in State Wage Cases. In such Cases the Commission is concerned to ensure the real value of minimum award wages is maintained and it does so having regard to relevant economic considerations. 275 It must be accepted that at the time the Full Bench in the Award Proceedings fixed the new rates of pay it did so on the basis of fixing fair and reasonable rates in order to remedy the undervaluation of the work performed by employees under the Child Care Award. If increases resulting from State Wage Cases are not applied to that Award, the wage rates may not reflect the true value of the work as determined by the Full Bench and its decision in the Award Proceedings may effectively be reversed as State Wage increases are progressively absorbed into the increases awarded. This will, of course, depend on the quantum of the increases granted. 276 The second relevant consideration in this case, which provides support for State Wage Case increases being applied to the rates of pay under the Child Care Award, is the inequity created by the decision of the AFPC which saw the increases awarded by that body added to the rates of pay determined in the Award Proceedings. So that rates of pay under the NAPSA applying to employees of corporate employers previously bound by the Child Care Award are some $27.36 or $22.04 ahead of the rates payable by unincorporated employers who remain bound by the Child Care Award. Apart from the obvious inequity this has created, it has a real potential, given the lack of enterprise bargaining undertaken in the industry and the absence of overaward payments, to distort the labour market in the childcare industry, which we do not consider would be in the public interest. 277 The third highly relevant consideration is that employer interests in the industry represented by ABI, as well as the DPE, acknowledge the appropriateness of adjusting rates of pay under the Child Care Award by $20.00 in the special case context. 278 It must be apparent from what we have said that given the peculiar combination of factors addressed above, we consider there may be a proper basis, on special case grounds, that the increases granted in the 2006 State Wage Case and the 2007 State Wage Case should be applied to the rates of pay under the Child Care Award. We intend to remit this matter to a Member of the Commission and, subject to the LHMU making application under the Special Case Principle, the member shall deal with the application in accordance with the observations made in this decision. The operative dates of the increases will be a matter for the member to determine but we would indicate that adjustment in rates by the incorporation of the amounts awarded in the 2006 and 2007 State Wage Cases may be comfortably accommodated in the application of the Special Case Principle. In the event no application is made within 28 days of this decision, the matter will lapse and the existing file will be closed. Such application may be made by seeking leave to amend the application brought in Matter No IRC 3608 of 2006. ORDERS

[176]

(h) to adjust wages pursuant to an application claiming that work has been undervalued on a gender basis in accordance with Principle 14. 3. Previous State Wage Case Increases Applications for increases available under previous State Wage Case decisions will be determined in accordance with the relevant principles contained in those decisions. 4. Test Case Standards Test case standards established and/or revised by a Full Bench of the Commission may be incorporated into an award in accordance with the Act. Where disagreement exists as to whether a claim involves a test case standard, those asserting that it does must make an application for a special case. 5. Adjustment of Allowances and Service Increments (a) Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses. (b) Existing allowances which relate to work or conditions which have not changed, including shift allowances expressed as monetary amounts and service increments, may be increased by 4.0 per cent for the State Wage Case 2007 adjustment. (c) Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Work Value Changes principle of these principles. (d) New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses. (e) Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the relevant principles of these principles. The relevant principles in this context may be Work Value Changes or First Award and Extension to an Existing Award. (f) New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant provisions of the Work Value Changes principle of these principles. 6. Work Value Changes (a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification. In addition to meeting this test a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against external classification to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position. These are the only circumstances in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this principle. (b) In applying the Work Value Changes principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed. (c) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole. (d) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the State Wage Case August 1989 (1989) 30 IR 107. (e) Care should be exercised to ensure that changes which were or should have been taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this Principle. (f) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work. (g) The expression 'the conditions under which the work is performed' relates to the environment in which the work is done. (h) The Commission will guard against contrived classifications and over-classification of jobs. (i) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other principle of these principles, will not be taken into account under this principle. (j) In arbitrating an application made under this Principle, the Commission is required to determine whether or not future State Wage Case general increases will apply to the award. 7. Standard Hours In approving any application to reduce the standard hours to 38 per week, the Commission will satisfy itself that the cost impact is minimised. Claims for reduction in standard weekly hours below 38 will not be allowed. 8. State Wage Case Adjustments In accordance with the State Wage Case 2007 decision awards may, on application, be varied to include a State Wage Case adjustment of $20.00, subject to the following: (a) The operative date will be no earlier than the date of the variation to the award.

At a glance

Court

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Before

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Judgment (235 paragraphs)

Legislation Cited (3)

Cases Cited (10)

Cited By (5)