State Wage Case 2008 [2008] NSWIRComm 122

State Wage Case 2008 [2008] NSWIRComm 122 - NSWIRComm 2008 case summary — Zoe

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· the cycle of business investment was continually extended by capacity constraints. 49 Dr Gelber noted that in its February monetary policy statement, the RBA gave its latest projections for inflation. The Bank expected inflation to continue to exceed its 2 to 3 per cent target range through 2008 and remain at the top end of its target band in 2009 in the absence of further monetary tightening. Specifically, the RBA forecast headline CPI inflation to rise from 3.0 per cent in the December quarter 2007, to 3.5 per cent in June 2008, and remain at 3.5 per cent in December 2008, before easing to 3.25 per cent in June 2009 and December 2009. Its forecast for its preferred 'underlying' inflation measure was for an increase from 3.6 per cent in December 2007 to 3.75 per cent by June 2008, before gradually easing to 3.5 per cent in December 2008 and to 3.25 per cent in June 2009 and December 2009. This was not only a clear indication of the RBA's intent to bring inflation back towards its target through 2009, Dr Gelber said, but also that the Bank expected inflationary pressures to persist. 50 As for wage inflation, Dr Gelber said it was likely to be a 'slow burn' and because of the influence of institutionalised wage setting it was unlikely there would be a blow-out. However, Dr Gelber said the combination of higher inflationary expectations and intensifying labour shortages was expected to see growth in the LPI pick up to 4.6 per cent by the end of the year, after running at around 4.0 per cent over the past three years. 51 Dr Gelber expected consumer demand to remain robust. With the employment and wage momentum continuing into the first half of calendar 2008, private consumption expenditure was forecast to grow 3.9 per cent in real terms in 2007/08. However, Dr Gelber expected consumer spending growth to slow through 2008/09 - despite rising wages, promised tax cuts and a strong labour market - as a result of monetary tightening by the RBA. Dr Gelber noted that BIS Shrapnel expected the RBA to raise the target for its official cash rate by another 0.5 percentage points in calendar 2008, from 7.25 per cent to 7.75 per cent. 52 As a result, private consumption expenditure was forecast to increase 3.4 per cent in 2008/09. 53 The tightness of the labour market was the critical issue, Dr Gelber said. The challenge was to encourage participation in the labour force in order to provide an adequate supply of labour to service demand.

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124 Mr Bali detailed a range of difficulties found by those in the industry including loss of tool allowance, need to travel long distances, as well as the lack of bargaining capacity. Mr Davies 125 Mr Kenneth Davies has been a member of the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union ('AMWU') since 1987. Mr Davies had been with his current employer for two years, engaged in the installation of air conditioning units and plant equipment in commercial buildings. 126 Mr Davies deposed that for a significant period of his working life he has been employed pursuant to agreements negotiated by the AMWU, which provided for percentage pay increases. Mr Davies was currently employed in accordance with an enterprise agreement negotiated by the AMWU, which provided for a base rate of $26.20 per hour plus allowances and a 4 per cent increase annually over each of the three years of the agreement. Mr Walker 127 Mr Brett Walker was 49 years old and had been employed as an Electrical Tradesperson since 1992. Mr Walker had been employed in his present position as a full time day worker for eight years. Mr Walker worked 36 hours per week on a 40 hour per week roster which afforded him a regular rostered day off. 128 Mr Walker was employed pursuant to the Heyday Group Sydney, ACC Major Projects Divisions, Heyday Electrics Major Projects Division Enterprise Agreement 2005 - 2008. He was paid at grade 5 (Certificate of Registration) under the enterprise agreement. Mr Walker provided a comparison of his wages pursuant to the agreement and the Electrical, Electronic and Communications Contracting Industry (State) Award. 129 The rate of pay provided by the agreement had been increased by 2 per cent each six months from December 2002 to March 2006, when a 4 per cent increase was applied, then returning to 2 per cent each six months from April 2002. 130 The agreement provided for a weekly rate of pay of $1015.92 for a 36 hour week from October 2007. The award which was varied on 28 September 2007 to incorporate the 2007 State Wage increase provided for a weekly rate of pay of $747.84 for a 38 hour week. Mr Walker was currently paid $268.08 more than the award rate for a 38 hour week. Dr Watson 131 Dr Ian Watson was an official researcher with considerable expertise in quantitative data analysis with a particular interest and expertise in labour market research, particularly in the area of low wage employment. 132 Dr Watson was a Senior Research Fellow at the Australian Centre for Industrial Relations Research and Training, University of Sydney from March 1994 to the end of 2006 when he took up his current position with Macquarie University. 133 Dr Watson was commissioned by Unions NSW to prepare a report dealing with low paid workers in NSW using the Household Income and Labour Dynamics in Australia Survey ('HILDA') initiated and funded by the Commonwealth Department of Families, Community Services and Indigenous Affairs and managed by the Melbourne Institute of Applied Economic and Social Research. 134 Dr Watson's evidence was that:

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180 The Minister submitted that the application affected employees of unincorporated businesses within the private sector in New South Wales who were reliant on awards. 181 To calculate the number of these employees, the Minister submitted that the most suitable source of data was the ABS survey of Employees Earnings and Hours 2006 ('EEH survey'). Approximately 567,000 or 16.7 per cent of employees in New South Wales were employed in unincorporated businesses in the private sector according to the EEH survey. Of this class of employees, almost 252,000 or 7.4 per cent were award reliant. 182 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. 183 In addition to private sector employees of unincorporated businesses, there were a number of award reliant employees who were employed by bodies which do not fall within the definition of an incorporated or unincorporated business and were most likely to be public sector employees. 184 The groups of employees in the New South Wales public sector dependent on State Wage Case adjustments for pay increases included trainees covered by the Crown Employees (Public Service Training Wage) Award 2005. The Minister submitted that around 1,500 trainees commence employment in the public sector every year. The duration of traineeships is between one and two years. There were less than 350 State Government employees paid under common rule awards who received their pay increases through the State Wage Case as well. 185 The Minister claimed that the State Wage Case would have an indirect positive impact through a flow-on effect to wages for certain groups of employees. The State Wage Case adjustment would set a benchmark for wage increases. These groups included children, non-award reliant employees working under unregistered common law agreements underpinned by awards and all award reliant employees. 186 Unions NSW agreed with the Minister in respect of the number of employees directly affected by the application, that is, employees of unincorporated businesses within the private sector of New South Wales. Unions NSW referred the Full Bench to the ABS Labour Force survey, which revealed that there were 2,451,700 people employed in New South Wales as at February 2008. The EEH survey indicated that 20.4 per cent of employees in NSW were employed by unincorporated businesses. This meant that there were 500,147 people employed by unincorporated businesses in New South Wales. Of these employees, 43.9 per cent were reliant on awards for their wages. According to the calculations of Unions NSW, 219,565 employees or 8.96 per cent of the total New South Wales workforce were the subject of this application. Unions NSW did not have any data concerning the proportion of employees who were award-reliant in the unincorporated private sector that were in either the New South Wales or the federal jurisdiction. 187 Unions NSW submitted that the majority of workers affected by any State Wage Case decision were employed on a part time basis (58.9 per cent); non-managerial (99 per cent); female (60.5 per cent); and concentrated in retail trade (19.8 per cent); health and community services (16.0 per cent); property and business services (17.2 per cent) and accommodation, cafes and restaurants (15.7 per cent) industries. 188 As we have observed, the CCER's application is specifically directed to low paid, adult employees who are subject to the jurisdiction of the Commission and whose employment is not currently subject to an industrial instrument. CCER made a further submission that only those persons who are currently paid below the ARCR would actually receive an increase if its application were to be granted. 189 According to CCER, approximately 44,000 employees in New South Wales are captured by its application. This figure was derived from the number of employees employed in unincorporated businesses in New South Wales, which was 550,000. Of those employees, the 44,000 represented 8 per cent who were on or below the ARCR. 190 The Minister disputed the figures submitted by the CCER and contended that the number of employees to whom the CCER application would apply was a much smaller section of the New South Wales labour force. The Minister opposed CCER's application on the grounds that there was an absence of specific occupations and callings that CCER claimed would be subject to the proposed order/award and, importantly, the overall unreliability of the numbers of such employees. 191 We accept the submissions of the Minister. As in State Wage Case 2007, the relevant employees affected are the private sector employees of unincorporated businesses who are award-reliant. 192 In respect of the employers who may be impacted by the claim, the Minister referred to internal research by the Office of Industrial Relations based on unpublished data supplied by the Australian Business Register, which it was submitted 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.

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Cost Impact of the Claim 194 In respect of the cost of the claim, the Minister made submissions similar to those made last year. The fundamental proposition of these submissions was that a $20.00 increase was appropriate and required. The Minister submitted such an increase would directly benefit the lowest paid workers without adversely impacting on the economy, employment and productivity. It was submitted that a $20.00 weekly increase for 210,000 employees would add around $218 million to the wages bill of private sector employers in New South Wales. As the private sector wage bill in New South Wales in 2006 was in the order of $140 billion, the proposed increase would add less than 0.2 per cent to the wages bill. 195 However, it was noted that around two-thirds of workers who would benefit from the claim were not full-time employees, and accordingly the economic cost would be significantly lower. It was not possible to measure the exact number of hours worked by these employees. 196 The Minister submitted that a 0.2 per cent increase in private sector wages costs would be unlikely to have a significant impact on the State's economy. That is, the macroeconomic impact of a $20.00 per week increase was likely to be small in terms of its impact on employment. The New South Wales economy, it was submitted, had grown at modest rates in recent years, notably due to a downturn in the housing construction sector. Looking ahead, growth was expected to lift a little as a modest recovery began in the housing sector. Growth in household consumption was also expected to lift, while business spending remained at high levels. 197 It was also submitted that a $20.00 increase per week in the ARCR ($531.40) would equate to an approximate increase of 3.9 per cent. In the year to the December quarter 2007, the ABS WPI for all private sector employees in New South Wales rose by 3.8 per cent. Therefore, it was submitted on behalf of the Minister, that a 3.9 per cent increase was consistent with average wage increases. This was further supported by the ABS WPI nationally for the year to March 2008, which rose by 4.1 per cent. For New South Wales, the WPI for the same period rose by 3.7 per cent. 198 For the year to December 2007 there was a disparity in increases in the WPI with respect to various private sector industries in Australia. State based data was not available. The wage increases in areas of skills shortage such as mining, construction and utilities sectors demonstrated increases in the LPI of 6.0 per cent, 4.7 per cent and 4.8 per cent respectively. In the award reliant industries of accommodation, cafes and restaurants and the retail sector, there were increases of 2.6 per cent and 2.9 per cent respectively. 199 The Minister relied on ABS data, which indicated that the round of wage cases in 2007 before the respective state tribunals had minimal impact on the WPI and employment. In early 2007 the Index received its main seasonal impact due to the volatility of the industrial relations changes and the proximity of the effective dates of the AFPC's first and second wage review decisions. 200 The Minister stated that almost all public sector employees were covered by agreements or awards. These instruments have implemented regular wage and salary increases which were greater than the State Wage Case adjustments and such adjustments have not been applicable to those public sector employees. Previous State Wage Case increases have only had a limited impact on public sector employment. Hence, in 2008 it was expected that the cost impact of this decision on wages and salary levels in the public sector would be marginal. 201 Unions NSW submitted that its claim for a 4.5 per cent increase for all employees affected by this Case would add 0.27 per cent to total ordinary times earnings in New South Wales. This was calculated by weighting the 4.5 per cent increase for full-time, part-time, permanent, casual, adult and junior employees and multiplying it by the proportion of New South Wales private sector employees employed in unincorporated businesses which were award reliant (8.96 per cent) and dividing it by the estimated AWOTE for May 2008 to give a maximum addition to ordinary time earnings. 202 It was submitted that the claim for 4.5 per cent was consistent with the average wage increases received through enterprise bargaining throughout New South Wales and Australia. Unions NSW relied on the evidence of Dr Gelber, who deposed that the claim for 4.5 per cent was affordable and justified on the following grounds:

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(5) in the absence of a sufficient wage rise, retention of employees will become more difficult as the labour market tightens. 203 Unions NSW denied assertions from the employer parties and the Minister that the State Wage Case would establish a benchmark and have a possible flow-on effect to wages generally in New South Wales. It was submitted that there was little evidence to support this assertion and that the claim by Unions NSW was consistent with the average wage increases achieved federally and in New South Wales through enterprise bargaining. 204 The employer groups opposed the claims of Unions NSW for a 4.5 per cent increase and the proposal of the Minister for a flat $20.00 per week increase. We have already observed that the Joint Employers sought a flat $13.00 increase and the Combined Employers sought a flat $10.00 increase. It was submitted by all employers that these increases proposed by Unions NSW and the Minister were excessive in the current economic environment. It was further submitted that the outlook for the world and Australian economies was more uncertain than the past and there was a clear threat from inflation. 205 The Combined Employers made similar submissions to those made in the 2007 State Wage Case. In respect of the cost impact, it was submitted that the principal focus of the Commission should be on the impact of cost increases on the employers directly affected and the impact an increase would have on inflation. 206 The Combined Employers submitted that whilst the number of employees directly affected by wage decisions of this Commission and the estimated direct wages cost to the state economy were relatively small, this was not the complete measure of the cost of award rate increases. The Combined Employers raised the issue of the flow-on effect that these minimum wage increases would have as a benchmark and thereby have a major influence on wages throughout the economy. 207 The Commission was also asked to consider the financial state of the employers who would be directly affected by the increases sought and the vulnerability of these employers and their employees to such increases. It was submitted by the Combined Employers that, other than the public sector, the employers who employ workers reliant on awards for their wages and conditions were primarily small, unincorporated employers in the community services, retail and hospitality sectors. Such small companies could not match the levels of output and profits enjoyed by the larger retailers. These sectors were labour intensive, with wage costs representing a substantial part of total costs and were very sensitive to any increases in award rates. 208 The ARA is the peak national retail association. It supported the position of the Combined Employers. However, in separate written submissions directed specifically to the retail industry the Association referred to the ANZ Industry Report on Retail Trade issued in March 2008 as evidence of the softening of the retail market following a strong performance in 2007. Real retail sales grew by a very strong 4.8 per cent in 2007 and this was expected to fall to 2.6 per cent in 2008. The increase in sales for 2008 was considered to be a solid result "considering the significant headwinds and uncertainties facing Australian Consumers in 2008". 209 The Association had heard from its members that sales have fallen by 15-20 per cent compared to this time last year. Importantly, it was submitted, small retailers have had a lower increase in sales in 2007 than the large retailers and face a greater volatility in sales. The ANZ report predicted that:

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212 The Minister submitted that moderate, predictable increases in minimum wages would not adversely affect employment. The Minister rejected the assertion by employer groups that minimum wage increases created unemployment. Rather, it was submitted that the Australian experience proved that it was possible to have falling unemployment while experiencing wages growth. 213 The most important evidence on which the Minister relied was Australia's current economic climate of falling unemployment and strong employment growth accompanied by steady increases to the minimum wage. The Australian economy has experienced 16 years of continuous economic growth and, in terms of Australia's relative international position in living standards, there has been an improvement from nineteenth in 1990 to eighth in 2004. In February 2008 the unemployment rate was 4.0 per cent, the lowest unemployment rate for 31 years, and the participation rate had increased to a seasonally adjusted rate of 65.2 per cent. 214 There was reliance by the Minister on Graphs 1 and 2 to illustrate the growth in participation rates and fall in unemployment over the past decade. 215 The Minister submitted that if the assertions of the employers had any basis, it would be supported by the economic data. After a decade of safety net adjustments, the data revealed falling employment, strong growth and a capacity to cope with moderate increases in the minimum wage. 216 Dr Gelber examined the impact of Unions NSW's claim and its effect on employment. He undertook an examination as to whether proposed wage increases were affordable for employers. First, he examined the state of the New South Wales economy. Dr Gelber stated that the overall health of the New South Wales economy was fundamentally sound despite lower growth relative to the rest of Australia. He said many of the negative factors which plagued the economy of New South Wales were waning. Growth had accelerated in 2007 and was expected to strengthen over the next two years. The state economy was forecast to strengthen on the back of solid consumer spending, recovery in the housing sector, expected recovery in the farm sector and from significant building construction. 217 Secondly, as we earlier noted Dr Gelber proceeded to examine employers of award dependent workers. He referred to ABS data from 2006, which stated that the main sectors of award dependent workers affected by the claim were in retail (19.8 per cent), health and community services (16.0 per cent), property and business services (17.2 per cent) and accommodation, cafes and restaurants (15.7 per cent). Dr Gelber stated that the forecast for business in all these sectors was positive and, consequently, business would be able to absorb higher wages. 218 Dr Gelber observed that the profitability of businesses determined their capacity to return higher wages to their workers. Profits as a proportion of national income were at historical highs and conversely wages share of national income was at historical lows. In addition, the profit margins of Australian businesses were at historic highs for the majority of business including retail (see Chart 3 below). In New South Wales, the proportion of wages of GDP was far below the 52.0 per cent share averaged between 1989/90 and 2001/02 (see Chart 4 below). With profits at such high levels, Dr Gelber suggested that businesses should reduce margins by increasing wages to retain their employees in times of tight labour markets, as was the case today.

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228 Mr R Bennett, who gave evidence for the Combined Employers, analysed the impact of Unions NSW's application on business and employment. Unlike Dr Gelber, Mr Bennett was more cautious about the prospects for the Australian and New South Wales economies. He stated that both economies faced pressures from slower world economic growth and financial market volatility as well as tight labour markets, high interest rates and inflation build up. He cautioned against creating excessive wage pressure on the economy through a State Wage Case increase until there were more positive signs of a sustainable recovery. 229 Mr Bennett noted that there were many New South Wales industries which currently faced difficulties. He also said that retail sales growth forecast in 2008 was only half of the growth figures in 2006 and 2007. Domestic tourism was likely to fall and the manufacturing sector in New South Wales would be adversely affected by the high exchange rates. In addition, he stated that the retail, accommodation and restaurant industries were especially sensitive to wage increases at the present time. 230 The threat of inflation was the most important concern for the economy. Underlying inflation had moved above the upper tier of the RBA's target range of 3.0 per cent and was threatening to go above 4.0 per cent. Mr Bennett stated that higher inflation combined with low productivity was reducing the capacity of business to absorb growth in wages. 231 Mr Bennett acknowledged that New South Wales had experienced high employment growth and falling unemployment. However, he said, employment growth and falls in unemployment had been slower than Queensland, Western Australia and Victoria. 232 Mr Bennett's evidence was that recently there had been uncertainty in the job market in Australia. He referred to the ABS job vacancies for February 2008, which showed the first decline in vacancies since late 2005. Vacancies fell 2.5 per cent in the three months to February. He stated that this would lead to an easing in employment growth in the next three to six months. Other leading indicators, he said, also supported the evidence of moderation in jobs growth. The ANZ Job advertisement survey for New South Wales indicated that the growth of employment was slowing down. 233 Mr Bennett stated that although the employment market was healthy, as evidenced by high employment growth and participation rates, the situation could rapidly change as a consequence of the issues he had identified. 234 Mr Bennett said that the significance of any increases flowing from the State Wage Case was its flow-on impact that would create wage pressures in other areas. In cross-examination, however, Mr Bennett admitted that there was no modelling which determined the extent of the flow-on effect and there was no reliable economic forecast upon which to base that assumption.

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239 Finally, the Minister argued that maintaining the value of the minimum wage as a 'living wage' would create an incentive to participate in the workforce and provide a barrier against exploitation. If minimum wages were to deteriorate in real terms the unfortunate outcomes would be a growth in wage inequality and low pay and the potential to create a class of 'working poor'. 240 Dr Gelber's report was relied on by Unions NSW in its submission on this issue. It was acknowledged that the current labour market was extremely tight. Dr Gelber emphasised that "[T]he challenge is to encourage participation in the labour force in order to provide an adequate supply of labour to service demand". To solve this problem in the current labour market he recommended that there be a sufficient increase in wages. 241 The Combined Employers' view was that it was unlikely that participation rates would be affected by wage increases, particularly in light of the current high ARCR in New South Wales and without changes to tax and welfare measures. It was submitted that high minimum wages would not have a positive impact on participation. The Combined Employers submitted that increases in the minimum wage would encourage employers to substitute less productive minimum wage workers for higher skilled, more productive workers on higher wages, thereby making it more difficult for low skilled workers to be employed. 242 It was also submitted that participation rates had a direct relationship with qualifications. People with degree qualifications or above had the highest participation rate, while those with no post-school qualifications had the lowest. 243 Federally, the participation rate rose by 2.1 per cent in the past decade and increased by 3.5 per cent in the past two decades. In New South Wales the participation rate increased by 1.7 per cent over the past decade. During this period, New South Wales award minimum rates had increased by 37.0 per cent and the ARCR rose by 42.0 per cent: see Table 10:

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The topic of the impact of minimum wage adjustments (and, in particular, safety net adjustments) upon employment growth (as opposed to unemployment) remains somewhat contentious. Some part of that controversy will, no doubt, be alleviated or resolved by the recent authoritative announcement by the OECD, which we have referred to in this section of our decision. The OECD study plainly indicates that there is scope for moderate minimum rate adjustments without significantly affecting employment growth in an adverse way (provided some tempering of the adjustment in wages is undertaken for particular groups such as teenage workers). 247 The Combined Employers relied on the evidence of Professor Lewis and contended that increases to minimum wages would detrimentally impact on the low skilled and low paid. Professor Lewis' evidence was that jobs and income would be redistributed away from the low skilled to those with better skills as minimum wages increased. Employers would replace the low skilled with higher skilled workers as a consequence of a higher minimum wage. However, again there were no studies or data to support this assertion. 248 The tight condition of the current labour market undermines the assertions of Professor Lewis. Both Dr Gelber and Mr Bennett stated that the employment market was very healthy, evidenced by high employment growth and high participation rates. Dr Gelber rejected the notion that low skilled award workers would be "pricing themselves out of the market". He stated that employers were struggling to fill vacancies and demand for labour still outstripped supply, especially demand for skilled labour. It would be very unlikely for employers to attract skilled labour at minimum award rates in the current economic climate. 249 All the employer groups argued that the current economic conditions did not justify minimum wage increases sought by Unions NSW and the Minister. They contended that employers faced higher interest rates, inflationary pressures, greater costs, less demand and greater uncertainties in the world economy.

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These considerations were to be examined in light of the current state of the economy, which all the employers submitted was uncertain and precarious. 270 It was submitted by the Combined Employers that this application primarily affected smaller employers in retail and hospitality who were unable to absorb wage increases in the face of pressures and uncertainty in the economy. The Combined Employers also submitted that the increases proposed by the Minister and Unions NSW would have a detrimental impact on low skilled and low paid workers. With soaring labour costs, the Combined Employers argued that workers with higher skills would replace low skilled labour. 271 There was little evidence to suggest that employers lacked the capacity to pay for wage increases. Profit margins for businesses and the percentage of profits in relation to national income were at record highs. In the retail sector, although sales growth had slowed, turnover in March 2008 was in excess of turnover in March 2007. Evidence was put forward by the Australian Retailers Association, which forecast that smaller retailers faced greater risk and volatility in 2008. We accept this is so and it will have a moderating effect on the view we take about the size of the increase given the retail sector is one of those most affected by any decision as to minimum wages. However, we do note there was no evidence to suggest that the relative profit levels to date of the smaller retailers have been lower than larger employers. Further, individual employers would continue to have access to the Incapacity to Pay Principle under the Commission's Wage Fixing Principles. 272 As stated previously, the current labour market is strong, with unemployment at record lows and participation rates at their highest. Employment growth was strong and there was surplus demand for labour, especially for skilled labour. In these market conditions, it would be highly unlikely that even with the increase sought, minimum award wages would attract skilled employees and thereby displace less skilled workers. 273 Another contention by the Combined Employers was that granting the claim would have a flow-on effect, which would add to the existing inflationary pressures in the economy. It was observed by the Combined Employers and other employer groups that unless minimum wage increases were in line with productivity improvements, wage increases would be the leading cause of inflation. The Combined Employers submitted that the minimum wage increases set by this decision would be the benchmark for wage increases throughout the economy. Reliance was placed on the evidence of Mr Bennett. 274 ABS data contradicted this contention. The data indicated that the round of state wage cases in 2007 had a minimal impact on the WPI. There was no evidence put forward by the Combined Employers to suggest that there would be such a flow-on effect on this occasion. In cross-examination, Mr Bennett admitted that there was no modelling that determined the extent of the flow-on effect and there was no reliable economic forecast upon which to base that assumption. 275 As we earlier noted, Mr Bennett also admitted in cross-examination that the low level of labour productivity in Australia was caused by capacity constraints in the economy rather than excessive wage increases. 276 Furthermore, we must stress that any increase that we decide upon in these proceedings is based on the peculiar considerations relevant to the position of low paid workers and the particular challenges and hardship they face in a period of escalating prices in such basic things as food and transport. There can be no justification for using an increase that we might determine as a benchmark for increases for the general body of employees in an industry or enterprise in the private sector or in the public sector.

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277 On 16 April 2008 Walton J, Vice-President, directed Unions NSW to file and serve a document outlining its view in respect of lagging awards by the close of business on 23 April 2008. 278 In compliance with this direction, Unions NSW filed a document with a table showing nine lagging awards with outstanding State Wage Case increases. However, it did not make any written submissions in respect of how lagging awards should be treated. 279 The Combined Employers supported the proposal of lagging awards being updated in respect of past state wage adjustments on the basis that there be an appropriate phasing-in period. The Combined Employers contended in their written submissions that an appropriate phasing-in period would be six months between wage increases and for cases where the most recent increase was during 2006, a twelve month interval between the 2006 and 2007 increase. The Joint Employers agreed with the Combined Employers' submissions. 280 Subsequently, during oral submissions, Unions NSW tendered a schedule prepared by the New South Wales Office of Industrial Relations, which showed 47 lagging awards. Unions NSW acknowledged the number of lagging awards was far more extensive than what was anticipated by the parties. Unions NSW opposed any delay in the receipt of wage increases flowing from previous State Wage Cases. 281 However, both the Combined Employers and Unions NSW accepted a proposal from the Full Bench that the methodology employed in previous Special Case Benches and/or State Wage Cases for resolving the problem of large numbers of lagging awards again be utilised. The Combined Employers expressed the reservation that the procedure had to meet the "concern of a timetabling approach to the introduction for the bringing up to currency of a lagging award". Mr Warren said that the Combined Employers were prepared to participate in the process provided that it led to phasing-in of wage adjustments over a reasonable time span for any lagging award. It was acknowledged that the Combined Employers had carriage for most of the lagging awards. 282 The methodology referred to by the Bench was that found in the Professional Engineers & Professional Scientists (Private Industry) (State) Award [2005] NSWIRComm 402 at [12] - [18]. 283 Having reviewed the approach set out by his Honour the Commission has determined to take two steps. The first is that at all future State Wage Case hearings the parties will be required to identify any awards which have not been varied to give effect to increases available under the previous State Wage Case so that the situation as to such awards can be considered and addressed. 284 The second is that we have decided, consistent with the approach adopted in the State Wage Case August 1997, that outstanding increases available under State Wage Cases should be phased in by agreement or, in the absence of agreement, by decision of a single member of the Commission. The requirement that increases available from this decision not be made available in an award until 12 months after the award has been varied for the 2008 increase will not strictly apply to these awards, but will be a matter to be dealt with either by agreement of the parties or by decision of the Commission. The aim is to make available, at the appropriate time, wage increases to which employees are entitled, but without affecting employment or business viability. We would expect all such applications for variation, and particularly those referred to us in the present proceedings, to be filed and served within 28 days of the date of this decision, and in this respect Unions NSW should perform a role in co-ordinating such arrangements.

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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. 287 Mr Thistlethwaite submitted that whilst flat dollar increases in wage rates may be appropriate in some circumstances, continually awarding such increases did not amount to the setting of fair and reasonable conditions of employment in New South Wales awards. This was because most workers in the rest of the economy who received wage increases through enterprise bargaining have had such increases awarded on the basis of percentage rather than flat dollar increases. 288 Mr Thistlethwaite illustrated his contention that the gap between those that relied on awards for their wages and those that enjoyed access to enterprise bargaining was ever-expanding, by pointing to the evidence of Ms Helen Maguire, a hairdresser, whose hourly rate of pay was $18.69 per hour and the evidence of Mr Kenneth Davies, whose classification was C10 under the Metal Engineering and Associated Industries (State) Award classification structure. Both employees were tradespersons. Ms Maguire relied on this Commission for award based increases to ensure her income increased on a regular basis. Mr Davies, however, was employed pursuant to the provisions of an enterprise agreement and for a significant period of his working life received percentage increases through enterprise bargaining. His hourly rate was $26.20. 289 This evidence led Mr Thistlethwaite to submit:

[388]

[T]hat should the Commission award a further flat dollar increase to award wages, further compression of skilled relativities in the classification structures in awards will occur, subsequently undermining the properly established skill based career structures within awards. Unions New South Wales submits that it is incumbent on the Commission to ensure the continued relevance of awards by maintaining the relative value of award wages associated with various classification structures in those awards. We submit that it would be unfair to award another flat dollar increase and further compress the skill relativities in classification structures in awards. 292 All employer groups opposed departing from awarding a flat money amount as did the Minister. The Combined Employers observed that the Minister's submissions recognised that, in supporting a significant $20.00 per week flat increase, such a flat increase would have the effect of increasing the minimum wage at a slightly faster rate for lower paid workers than workers in higher skilled classifications. The Minister also recognised that lower paid workers were usually those with lesser skills and had less bargaining power and were less likely to be able to negotiate overaward increases than employees with higher skills. The Combined Employers recognised the bargaining power, or lack of it, of lower paid workers as one of the elements to be considered. However, a critical consideration, it was submitted, was that a large proportion of lower paid workers and their employers were in the retail and hospitality industries and it was in these industries where the capacity to pay wage increases was limited. 293 In our view, no party has advanced a convincing argument why the position of Unions NSW should not prevail. In the previous two State Wage Case decisions the Commission has voiced its concern about the effect on award relativities of flat dollar increases, which have now been awarded consistently in the last ten State Wage Cases. The response of the Minister and employers has been the same as that put on this occasion. Whilst it has been consistently recognised by the Minister and employers that flat dollar increases have had a distorting effect on wage relativities and that at some time in the future the problem will need to be addressed, the Commission has not been provided with any assistance as to when or how that should occur. The only answer has been, "not this time". 294 We consider that Mr Thistlethwaite makes a significant point in his comparison between Mr Davies and Ms Maguire. As he submitted, both are tradespersons and whilst there may be other factors to be taken into account the fact is that if Mr Davies, a male tradesperson, continues to receive percentage adjustments and Ms Maguire, a female tradesperson who is not in a position to engage in enterprise bargaining with her employer, continues to receive only flat dollar increases the wage gap will continue to widen. 295 To illustrate his point about deteriorating wage relativities Mr Thistlethwaite also referred to the Metals, Engineering and Associated Industries (State) Award and noted that whereas in 1997 the rate for the C14 classification was 79.65 per cent of the C10 rate, by 2007 flat dollar increases had closed the gap to the point where the C14 rate was 85.95 per cent of the C10 rate. 296 The original wage relativities in the Metals, Engineering and Associated Industries (State) Award did not occur by accident but were derived from the parent federal award to which the State award is a counterpart. The relativities in the federal award were determined after an extensive restructuring of the classifications in that award in order to provide for a skills based career path. To allow the relativities to be further compressed will destroy the integrity of the skills based career path. 297 It was submitted that a flat increase would benefit lower paid workers more than higher paid workers in higher skilled classifications who, it was contended, were better placed in the labour market to negotiate higher wages because of their skills. That may well be so in some industry sectors but it is not altogether evident in those sectors with which we are mainly concerned in these proceedings: see the example of Ms Maguire.

[389]

298 Accordingly, we have decided that the increase in these proceedings shall be a percentage increase. AMOUNT OF INCREASE 299 In these proceedings, four proposals were put forward as to what should be the outcome in terms of any increase to the minimum award wage. First, was a claim by Unions NSW for an increase of 4.5 per cent. The second was the Minister's proposed flat dollar increase of $20.00. The Joint Employers proposed an increase of $13.00 and the Combined Employers an increase of $10.00. CCER proposed that the ARCR rate should be increased by $5.79 (being the difference between its claim of $32.79 made in the 2007 State Wage Case and $27.00, which was awarded by the Full Bench), together with any general State Wage increase. CCER contended this was the most appropriate outcome to balance the needs of the low paid and that of employers, without impacting adversely on the New South Wales economy. No party argued that there should be no increase. 300 In the proceedings, the parties and intervenors proposing a flat dollar increase were invited to advise the Full Bench of what the increase should be in percentage terms if that is what the Full Bench decided. None of the parties or intervenors took up the invitation. Such a response was quite unsatisfactory. We would observe that parties and those who represent them before this Commission have an obligation to assist it in its deliberations. In the result, having decided to award a percentage increase we have done so in the absence of any assistance from the Minister and employers as to what that percentage adjustment should be. 301 As we earlier stated, a strong case has been made out for an increase in minimum award wages for the low paid. Their precarious financial circumstances, their lack of bargaining power, the evident inequality that exists between general community wage levels and the wages of 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 such employees, but which at the same time is economically responsible, having regard to the requirements of s 51 and s 146(2) of the Act. 302 We note the following matters in particular:

[405]

This submission is fundamentally misconceived. The application is not an application for a general order for a 4 per cent wage increase; it is an application for general wage-fixing principles in accordance with which wages may be varied under the relevant statutory provision. The Commission is specifically empowered to set such principles by virtue of ss 51(1) and 51(4), which by their very nature apply to every employee subject to the Commission's jurisdiction. Although the practical effect of these principles will vary (depending upon different applications and the different circumstances of various groups of employees), there is no doubt that the general principles will apply to every employee. Thus, whilst it is correct to note that the combined operation of the principles may (upon further application) result in a wage increase of 4 per cent for a proportion of the employees only within the Commission's jurisdiction (predominantly those employees working under awards in unincorporated private businesses: 40 per cent on Mr McDonald' s analysis, but an even lesser percentage if one included Crown employees, as one should), the limited operative scope of one facet of the general principles cannot form the basis to restrict the Commission's jurisdiction. In contrast, the Special Case Principle will apply to all employees (governmental and otherwise) within the Commission's jurisdiction. 313 It is apparent that the making of the order sought by CCER would apply generally, or would be likely to generally affect the conditions of employment of employees in New South Wales who are subject to the Commission's jurisdiction. The order itself is a catch-all of general scope applying, or likely to apply, to any employee who finds himself or herself outside award employment or not employed by a constitutional corporation. The fact that, practically, the minimum rate of pay would only have limited scope from time to time, as it would only apply to a small proportion of employees presently not covered by awards or agreements made or approved under the Act in this State, does not preclude its general application or likely general application to conditions of employment of employees in New South Wales in circumstances where employees may potentially lack award or agreement coverage. In this respect, it may be seen that the proposed decision and order is within the meaning of a State decision as defined in s 49 of the Act. 314 It is clear from s 51(1) that in a State decision the Commission has the jurisdiction to go beyond the mere making of "principles" to making decisions which have the effect of setting conditions by award or order, see State Wage Case - August 1997 (1997) 73 IR 200. 315 Secondly, s 52 of the Act provides:

[406]

A Full Bench of the Commission may, when adopting the principles or provisions of a national decision of making a State decision, make or vary award, or make other orders, to the extent necessary to give effect to its decision. 316 By s 52 the Commission has the power to make orders that would give effect to the State decision by the establishment of rates of pay or conditions of employment. As a matter of construction the expression "other orders" is not co-extensive with the expression "award". In our view, the reference to "orders" recognises that the Commission may alter the terms of employment of those in its jurisdiction other than by the making or varying of an award. This would ordinarily arise where the Commission has been minded to make a general order varying all awards, but nothing in the language of the section indicates that the Commission's powers are to be confined to an order of that character. 317 Further, the term "order" is not defined in the Act, and it is implicit in the definition of "award" in the dictionary to the Act that there is power to make an order that sets conditions of employment as distinct from a power to make or vary an award. To make an order setting a minimum rate as determined in the State decision is, therefore, valid and the order as submitted by the CCER is allowed by s 52 of the Act. 318 It is appropriate to deal shortly with particular arguments posited against the Commission having jurisdiction to make an order of this type. 319 We have already disposed in paragraphs [312] to [314] above of the contention that the Commission lacks jurisdiction to make an order because the matter does not fall within the requirement of s 49 of the Act. 320 One of the other submissions in opposing the order was that the CCER application had incorrectly relied upon ss 51 and 52 of the Act in that its application for an order or a new award was not an application that gave effect to the making of a State decision sought by Unions NSW, as required by s 52; nor was it an application of a State peak council or on the Commission's own initiative as required by s 51(2).

[412]

325 It is undeniable that there are employees within the New South Wales industrial system who are not currently covered by awards or any other industrial instrument. Nor are they caught by the minimum entitlements set by the AFPC under the Workplace Relations Act 1996 because these are limited to employees of constitutional corporations. The employees with whom we are concerned comprise a relatively small, though significant, group of workers because they are not regulated by the respective industrial systems, so as to provide for minimal entitlements. 326 A major point of issue for parties opposing the making of an order on the merits was that the number of award free employees in New South Wales was indeterminate and the CCER figures in this respect were incorrect. The submissions by CCER in support of an order contained only broad references to certain industries and occupations which might be subject to such an order and the types of activities performed by such employees. From this it was said that the failure to identify specific workers who might be subject to such an order made the potential scope of the order difficult to discern. 327 Whilst we agree that the CCER submission lacked precision in the identification of the type and number of workers affected, we do not think that it was so vague as to be fatal to the application. 328 CCER demonstrated that there was a group of employees who fell within the subject category. No party appearing in these proceedings suggested otherwise. Any imprecision relates only to the identification of the industries and occupations in which workers were engaged and the precise number of those employees working in New South Wales. 329 Nonetheless, CCER did succeed in identifying that the subject workers fell generally across construction, retail, accommodation, property and business services, education, health and community services. Further, it made reference to the commissioned report by Dr Ian Watson, which stated that of those paid at or below the ARCR: nearly 90 per cent were not members of an industrial union; 45 per cent were men and 55 per cent were women; over half were aged between 25 and 44; 60 per cent were in a married or de facto relationship; over half had high school as their highest level educational qualification; and a third had not completed Year 12. Further, the evidence of Dr Watson revealed: most were labourers, or performed clerical sales or service duties; nearly three-quarters did not receive work related training; 51 per cent were full time employees, and 49 percent were part time employees; over half of the workers were in a family with 38 per cent being in a couple family with dependent children and 20 per cent being in a group household or multi family. These findings presented a general picture of the disadvantaged circumstances of those paid at or below the ARCR (of which a proportion are not covered by an industrial instrument under the Act).

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