Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2003 1 (14)
WAGES AND WAGE DETERMINATION
IN 2002
MARTIN J. WATTS*
I
n this review, we provide a description of the macroeconomic environment prevailing
in 2002, as a backdrop to an analysis of movements in wages, with particular
reference to the Safety Net Adjustment in May. We conclude that there is no evidence
of an acceleration of wage growth in 2002. A number of rulings and legislative changes
that impact on wage setting are assessed.
INTRODUCTION
The share of employees on awards only continued to diminish in 2002, with the
main increase in coverage being the number of workers on individual registered
and unregistered agreements. Aggregate wage growth remained modest and
provoked little direct comment from the Reserve Bank of Australia (RBA) in its
quarterly statements on monetary policy. The federal government tried to
curtail what they perceived to be pattern bargaining by amending the
Workplace Relations Act 1986.
The Industrial Relations Commission awarded a flat $18 increase at the annual
Safety Net Case in May. This increase provoked the usual round of criticisms by
conservative politicians and industry leaders. Public attention was mainly
focused on executive payouts, which had preceded some of the corporate collapses
in 2001 and 2002. At the same time, workers were trying to secure their entitlements against economic, legal and political obstacles. A decision by the Full Bench
of the Federal Court overturned an earlier decision that had outlawed strike action
by the Australian Workers Union (AWU) in support of the imposition of
bargaining fees. The year ended with recommendations by the Human Rights
and Equal Opportunity Commissioner (HREOC) about the provision of
federally funded paid maternity leave (Goward 2002b), but the government
remained non-committal about whether to support the proposal.
In the following section, I shall examine the macroeconomic environment
within which wage setting took place. This will be followed by an examination
of wage outcomes in 2002. In the penultimate section, I shall outline key developments in industrial relations and labour market legislation, along with decisions
of the AIRC, which have impacted on the wages and conditions of Australian
workers. Concluding comments are provided in the final section.
* Centre of Full Employment and Equity, The University of Newcastle, Callaghan, NSW 2308,
Australia. Email: Martin.Watts@Newcastle.edu.au
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BACKGROUND
Macroeconomic forecasts play a key role in the annual deliberations of the
Australian Industrial Relations Commission (AIRC) on the appropriate safety net
adjustment for award-reliant workers. In addition, these forecasts influence the
level of the cash rate set by the RBA and hence, the structure of interest rates,
which impact on households’ living standards.
The RBA (2002b) noted that growth prospects for the world economy
exhibited two distinct phases during 2002, with a gradual recovery expected
during the first six months, which was followed by slower growth in the second
half of the year.
In its assessment released in September, the International Monetary Fund
(IMF) forecast of world growth for 2003 was 3.7 per cent, as compared to
2.8 per cent in 2002. The Australian economy proved to be more resilient with
the growth rate being 3.7 per cent in the 12 months to September 2002, which
was largely driven by the growth of domestic demand via the sustained growth
in consumption, a revival in business investment and the boom in the housing
sector (ABS 2002a).
Monetary policy
At its May meeting, the RBA Board raised the cash rate by 25 basis points from
a low of 4.25 per cent. The Australian economy had been maintaining a reasonable
growth rate and prospects for the world economy were continuing to improve.
The Board feared that ‘maintaining the cash rate at such a low level risked amplifying inflationary risks and fuelling other imbalances that could jeopardise a continuation of the current economic expansion’. (RBA 2002a).
This increase and the subsequent 25 basis point increase in June 2002 were
further examples of the RBA’s pre-emptive approach to monetary policy, despite
the absence of any firm evidence about rising inflation. There is a consensus across
a broad range of macroeconomic research that a recession has a long-standing
deleterious impact on the economy through persistently higher unemployment.
Disagreement persists over which rates of economic growth and inflation are
sustainable in Australia.
Over the 12 months up to September, the headline rate of inflation of
3.2 per cent remained within the acceptable band defined by the RBA (2002b,
p. 50). There was little pressure from rising wage costs. The bank’s assessment
was that the underlying inflation rate was about 2.75 per cent,1 which would continue in 2003, given the weak, but uncertain, outlook for the global economy.
The bank correctly anticipated that the actual rate would be higher in the short
term, reflecting the influence of the drought on food prices.
WAGE
DETERMINATION IN
2002
In this section, we examine the coverage of different forms of wage determination and the associated rates of money wage growth. The Safety Net case in
May is subject to a detailed analysis along with the ongoing debate about the
high level of executive salaries.
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Coverage and content of agreements
There are three major sources of Australian data on the different types of extant
agreement. Preliminary Australian Bureau of Statistics (ABS) data on employee
earnings are available for May 2002 (ABS 2002b), but have limited data on different types of agreement. The Department of Employment and Workplace
Relations (DEWR 2002) collects data on registered federal agreements and the
Australian Centre for Industrial Relations Research and Training (ACIRRT)
collects data on registered state and federal agreements.
The first comprehensive ABS data set on the distribution of employees across
different types of federal and state agreements and the associated rates of pay
was released in March 2001 and was based on a survey conducted in May 2000
(ABS 2000). In May 2000, 23.2 per cent of workers were covered by awards only,
36.7 per cent by registered and unregistered collective agreements, and the
remainder by registered and unregistered individual agreements. By comparison, in May 2002, there were 21 per cent of all employees on awards only,
representing 25.1 per cent of private sector employees and five per cent of
public sector employees, and 37 per cent of all employees were covered by
collective agreements (ABS 2002b).2 Thus, the coverage of individual agreements,
including common law contracts and registered individual agreements such as
Australian Workplace Agreements, increased faster than collective agreements.
In May 2002, there was a positive relationship between the incidence of collective agreements and the number of employees per enterprise. On the other hand,
there was a greater incidence of individual agreements in enterprises with fewer
employees.
At the end of September 2002, there were 14 450 federal wage agreements
covering an estimated 1 537 700 employees, who represented approximately
16.5 per cent of all employees, whereas there were 11 755 federal wage agreements current in September 2001, covering an estimated 1 362 100 employees
(DEWR 2002). At the end of 2001, the approved AWAs covered over 215 000
workers across 3 746 separate organisations (DEWR 2002). Since 1998,
88 per cent of AWAs have been lodged by the private sector. At the end of 2001,
the retail trade accounted for 17 per cent of AWAs, property and business
services (16 per cent), transport and storage (10 per cent) and the government
administration and defence (10 per cent).
Money wage growth
Since the advent of enterprise bargaining, aggregate wage data have been
difficult to interpret. Many employees have unregistered agreements, wage
increases may be granted in exchange for trade-offs with respect other conditions
and there are major compositional changes occurring in the workforce (Burgess
1995). For example, in the Agreements Database and Monitor (ADAM) reports
for June and December 2002, it was noted that the agreements that involved
high wage increases often entailed the absorption of allowances and overtime
(ACIRRT 2002a, p. 4; ACIRRT 2002c, p. 2). Also, there was an emergence of
low guaranteed wage increases, combined with high at risk wage increases, which
were linked to Key Performance Indicators (KPIs) (ACIRRT 2002c, p. 3).
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2002
However, from the diverse sources of wage data analysed below, there is no
compelling evidence of an acceleration of wage growth in 2002.
No meaningful comparisons are possible of wage data across different types
of agreement from the ABS publications (2000 2002b). The computed average
rates of annualised wage growth across the different types of agreement are
implausible, which suggests that the statistical noise from including all workers
of all ages, who are working part-time and full-time, is considerable.
Full-time adult Average Weekly Ordinary Time Earnings (AWOTE) rose
4.9 per cent in the 12 months to August 2002, while male and female AWOTE
rose by 4.6 per cent and 5.1 per cent respectively (AUSSTATS). The full-time
adult AWOTE of $879.4 in August 2002 was more than double the federal
minimum wage of $431.40. The annual increases in full-time adult AWOTE
ranged from 9.8 per cent for Manufacturing, 7.6 per cent in Property and Business
services to -1.62 per cent in Transportation and Storage, with the latter figure
suggesting a change in weekly hours worked or compositional change within
the industry.
Table 1 Annual percentage increases in ordinary time hourly rates of pay index, excluding bonuses, by industry, September 2000–2002
From quarter of corresponding year
Sep 00
Sep 01
Sep 02
Mining
Manufacturing
Electricity, gas
and water supply
Construction
Wholesale trade
Retail trade
Accommodation, cafes
and restaurants
Transport and storage
Communication services
Finance and insurance
Property and
business services
Government administration
and defence
Education
Health and community
services
Cultural and recreational
services
Personal and other services
All industries
Source: ABS (2002c), Table 10.
2.6
3.0
3.9
2.9
3.8
4.4
4.3
3.4
4.0
4.5
3.3
2.7
2.9
3.6
3.0
2.3
3.0
3.0
3.5
3.3
3.0
2.7
3.0
3.2
3.6
3.1
4.1
3.8
4.4
2.4
3.0
3.5
3.3
2.7
3.6
2.8
3.2
2.4
4.4
3.5
3.8
3.0
2.9
3.1
3.4
3.0
3.1
3.3
3.6
3.6
3.3
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During 2002, wage growth, as measured by the fixed weight Wage Cost Index,
was 3.3 per cent in the year to September 2002 (ABS 2002c).3 This was beneath
the RBA’s target band of 3.5–4.5 per cent and represents a slight moderation of
the rate compared to the year to September 2001. There was little difference
between the growth rates for the public and private sectors, although simple
comparisons must be made with caution because their respective occupational
compositions differ markedly. Table 1 shows the annual percentage change in
the wage cost indexes by industry. The fixed weights appear to significantly reduce
the wage variability.
Data from DEWR show that since September 2000, the average annualised
increase for all existing agreements has exhibited a very slow trend increase
from 3.6 per cent. DEWR (2002) also reported that there was no evidence of
an acceleration of wage growth during 2002, with federal wage agreements
formalised in the September quarter paying an average annualised wage increase
(AAWI) of 4.1 per cent, up from 3.6 per cent in the June quarter. Utilising
the employment weights associated with June 2002, DEWR estimate that
0.3 percentage points of the increase represents compositional change.
Figure 1 shows quarterly AAWIs per employee across groups of industries for
new agreements certified in the corresponding quarter across industry groups
from March 1998 to September 2002, based on DEWR data. These new wage
agreements, while exhibiting considerable volatility provide some indication
of recent developments in the wages system, although in September 2002, for
example, they only represented 9.5 per cent of extant agreements.
Construction and manufacturing consistently yield the highest AAWIs.
Agriculture and mining exhibit extreme volatility that probably reflects the
relatively few agreements finalised in each quarter. Commercial services have
generally exhibited the lowest AAWI, but this group comprises somewhat heterogeneous industries, ranging from Wholesale and Retail Trade to Finance and
Insurance.
ACIRRT (2002c, p. 5) reports an average annual percentage wage increase of
4 per cent, based on a sample of state and federal agreements, operating at the
end of the September quarter 2002. This rate of increase has remained relatively
stable. The construction industry continued to lead the wage outcomes, with
an average annual wage increase of 4.5 per cent, as compared to the mining
industry with the lowest average annual wage increase of 3.4 per cent. Mining
continued to pay the highest weekly wages to full-time employees, except nonmanagerial juniors.
ACIRRT (2002a, pp. 3–4) explore the factors that contribute to the size of
wage increases in agreements operating at the end of December 2001. Past outcomes, including economic growth, productivity growth and inflation, are taken
into account along with future outcomes, including inflation, productivity growth,
individual staff performance appraisals and safety net adjustments for award reliant
workers. The analysis of the ADAM database revealed that CPI growth and Safety
Net Adjustment (SNAs) were more commonly used than individual performance
appraisals. Less than 6 per cent of agreements specified SNAs as the sole basis
of wage adjustment. On the other hand, while AWAs used CPI movements
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and SNAs as the main factors, there was a greater reliance on performance
linked factors.
Gender wage ratio
There have been fluctuations in the gender AWOTE ratio for full-time adults
over the last decade, but it has remained between 83 and 85 per cent, based on
a four quarter moving average (Preston 2001). In August 2002 the ratio for the
four quarter moving average was 84.7 per cent (AUSSTATS, own calculations).
Examination of the gender ratio, since mid-1996 reveals a steadily increase, but
the separate computations of gender AWOTE ratios across industries for
the period August 1996 (gender ratio 83.01) to August 2002 (84.72) suggests
that compositional change has been significant in the overall rise in the gender
ratio of 2.06 per cent, since seven of the 16 ANZSIC industries exhibited a decline
in their gender ratios. Further analysis of this issue is beyond the scope of
this review.
Figure 1. AAWI per Employee of Federal Agreements certified within the Quarter
by Industry Group, March 1998-September 2002
Notes: Manufacturing and construction are equivalent to the ANZSIC industries. Commercial services:
Wholesale; Retail; Accommodation, Cafes and Restaurants; Transport; Communications; Electricity, Gas
and Water, Finance and Insurance, Property and Business; Cultural and Recreation; and Personal and
Other. Non-commercial services: Education and Health, Government Administration and Defence and
Community Services.
The estimates have been rounded since June 1999. Historical estimates have been revised, so the Figure
may exhibit slight differences as compared to Figure 1 in Watts (2002).
The AAWIs are calculated as a weighted sum of the AAWIs per employee per ANZSIC industry with
the weights given by the corresponding employment shares.
Source: DEWRSB (2002, various issues), author’s calculations.
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Living Wage case
In November 2001 the ACTU filed its Living Wage claim under the Workplace
Relations Act 1996. The peak body requested a $25 per week increase in all award
rates of pay with an equivalent increase in allowances (AIRC 2002, para. 1). The
Labor state governments (LSG) supported the ACTU’s claim, but gave the
Commission some latitude to reduce the adjustment to awards in the event of a
deterioration in the economic outlook (AIRC 2002, para. 14).
The Commonwealth argued that a $10 increase should be available on
application to minimum classification rates at or below the C10 classification
($507.2) with the increase to be fully absorbed into over-awards, including those
from enterprise agreements and informal over-awards (AIRC 2002, para. 13).
The industry groups generally favoured an increase of $10 per week, which was
to be confined to lower paid workers (AIRC 2002, paras 3–11).
Under the Workplace Relations Act 1996, s. 88B(2)b), in setting appropriate
minimum rates of pay, the AIRC is required to have regard to ‘economic factors,
including levels of productivity and inflation, and the desirability of attaining a
high level of employment’, but also to take into account the need to provide
fair minimum standards for employees in the context of general Australian
living standards and the needs of the low paid (para. 119).
An analysis of the arguments presented to the Commission is insightful because
it conveys the underlying beliefs of the major players about the functioning of
the wage system. However, the participants tend to embellish and repeat their
arguments from previous Safety Net Cases.
The major issues addressed in the submissions included:
1. the impact of the ACTU’s demand on the macroeconomy and different
sectors;
2. the appropriateness of the wage system, rather than the tax transfer system,
in addressing the needs of the low paid; and
3. the coverage of the SNA.
We address each of these issues briefly below.
1. Economic impact
The Commission received submissions that addressed both the macroeconomic
and microeconomic (sectoral) impact of safety net increases. After detailed
analysis of official economic data and economic forecasts (paras 20–74), the
AIRC concluded that the outlook for the Australian economy was generally
positive, with economic growth strengthening over 2002–2003. The projections
for inflation were modest and within the range of two to three per cent. The
AIRC acknowledged that there was uncertainty about the international outlook
and its implications for the trade sector, which the Commonwealth had also
emphasised (AIRC 2002, para. 22). Hourly productivity growth in the market
sector had strengthened in the second half of 2001. The Commission was not
persuaded that the decisions in May 2000 and May 2001 had materially affected
employment growth (AIRC 2002, para. 102). The Commission concluded that
in light of the positive economic outlook and notwithstanding the uncertainty
about the world economy, the Australian economy could withstand reasonable
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improvements in the safety net of minimum wages without undermining the
modest inflation rate (para. 126).
The Commission noted that that the ACTU and Commonwealth estimates
of the gross direct impact of the ACTU claim were similar, being in the range of
0.5–0.59 per cent. In assessing the proposed claim against current economic
indicators, they argued that the estimated net impact on aggregate wage growth
was relevant. The Commission was skeptical of the estimates from the federal
government and industry groups of the magnitude of the (indirect) flow on to
employees covered by agreements under which they were not directly entitled
to the safety net increases. The evidence provided to the Commission suggested
that this impact would be limited.
The Commission acknowledged the sectoral impacts of minimum wage
adjustment but argued that the consideration of national economic factors was
of prime importance, rather than the circumstances of particular enterprises.
The Economic Incapacity Principle was an appropriate mechanism for the
examination of departures from the SNAs (para. 122).
There was no evidence that productivity growth was greater in firms paying
bargained increases, which would have justified a degree of caution in the safety
net adjustment, due to its potentially adverse impact on some sectors with a high
degree of award reliance. Indeed evidence provided by the Australian Industry
Group suggested that sectors characterised by high award reliance, such as wholesale, retail and hospitality, had contributed to the improved productivity growth
during the previous decade (AIRC 2002, para. 104). Also employment in the award
reliant industries of accommodation, cafes and restaurants and the retail sector
had risen faster than average, particularly since late 1996.
2. Wage inequality and the social security system
The Commonwealth (2002, Chapter 6) again ran the argument that the wages
system had a limited means of meeting social equity goals and that the tax
transfer system provided more targeted assistance. Further, unemployment
was a major source of poverty, and any sizeable increase in minimum wages
was asserted to undermine employment opportunities for many low skilled
employees and new workforce entrants.
The Coalition Government has shown little interest in restructuring the tax
transfer system, although the Workplace Relations Minister Abbott in a speech
to the Young Liberals Annual Conference in January 2003 addressed at some
length the issue of the work disincentives resulting from the interaction of the
tax transfer system with the wages system (Abbott 2003).
The AIRC viewed minimum award wages and the social wage as interdependent
and complementary means of addressing the needs of the low paid (para. 144).
The Commission quoted Saunders (2001) who argued that the compensation of
employees was the most important source of income, in aggregate and for most
households with an employed member, so that safety net increases do assist in
meeting the needs of the low paid. This claim misses the point because the
argument of the Commonwealth and some industry groups is typically based on
the efficiency at the margin of raising minimum awards, as compared to manipu-
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lating the tax transfer system. However, these groups fail to recognise the dynamic
inefficiency of imposing constant money wages for a period of time on a sizeable share of the workforce (Mitchell & Watts 2002, p. 97). Also, in their focus
on generating the right structure of incentives for the jobless, they ignore the
absence of job opportunities for them.
By arguing that SNAs were a limited means of achieving social equity, the
Commonwealth appears to be trying to marginalise the Living Wage case, thereby
gaining greater discretion to determine the degree of economic inequality within
the Australian economy, through manipulation of the tax transfer system.
The Commonwealth’s statement about the significance of unemployment in
determining the extent of poverty was somewhat disingenuous, given that its tight
monetary and fiscal policies in the form of high interest rates and budget
surpluses have been a major cause of persistent unemployment in Australia
(Mitchell 2001). Further, rather than viewing persistent unemployment as a
collective problem, the Coalition Government (and the previous Labor
Government) has managed to construe unemployment as an individual shortcoming thereby justifying the principle of mutual obligation, with its punitive
treatment of the unemployed.
3. Coverage of the SNA
The Commonwealth (2002, 7.2) argued that restricting safety net increases to
Classification C10 and below, maintained the incentive of workers in higher
classifications to engage in workplace bargaining, whereas workers on a classification below C10 had a limited capacity to bargain. Thus the C10 cap was viewed
as critical to the spread of agreement making, which was asserted (without any
supporting evidence) to be a major factor underpinning the strong productivity
improvements which had contributed to the resilience of the Australian economy
in a difficult international economic environment (Commonwealth 2002, 7.14).
The evidence from the AiG outlined above, which noted the contribution of the
award reliant sectors to economy productivity growth, would appear to challenge
this claim.
The Commonwealth (2002, 7.15) noted that the principal object of the
Workplace Relations Act 1996 is to provide a framework for cooperative workplace
relations. By not imposing the C10 cap, the Commission would be failing to give
due weight to the legislative requirement to encourage agreement making and
promote enterprise level workplace relations. In its discussion of its decision the
AIRC noted that the Commonwealth had provided material indicating that
the number of employees covered by agreements had shown steady growth
(para. 162), so that it was not evident that the comprehensive coverage of
SNAs was inhibiting agreement making.
The Commonwealth also reiterated the claim made in its 2001 SNA submission
that much of the benefit of uncapped safety net adjustments flowed unnecessarily
to middle and high income families, rather than being received by genuinely low
paid workers. The Commission argued that SNAs do assist in meeting the needs
of low paid, even though they are not perfectly targeted and that none of the
material presented to the 2002 case altered its view.
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Also the AIRC referred to the terms of s. 88A(b) of the Act which were also
addressed in last year’s decision. This requires that a Safety Net of fair minimum
wages be maintained for all award reliant employees, and not just those classified
at or below the C10 level (para. 159, see also Watts, 2002, pp. 236–38). The
Commission’s failure to adjust all awards would mean that relative awards would
no longer reflect the skill, responsibilities and conditions of employment associated with different jobs. Some awards would become increasingly irrelevant to
wage determination and no longer a benchmark for the no disadvantage test. If
the problems of the low paid were to be resolved via work related benefits indexed
to average wage growth to allow for real growth, then employees on higher
awards, who were unable to negotiate wage increases, would still be neglected,
due to the likelihood of being ineligible for the work related benefits.
In its sixth Safety Net Adjustment since the Workplace Relations Act 1996, the
Commission (2002, paras 160–4) awarded an $18.00 per week increase in all award
rates. The federal minimum wage was increased to $431.40 per week. The usual
conditions applied which including the full absorption of the award in over-awards
where possible, and the phasing in of the increase no less than 12 months after
the increases provided for in the May 2001 decision. The AIRC concluded (2002,
para. 161) that the gross impact on aggregate wages growth would be similar to
that arising from the 2001 SNA decision. The flat increase was a smaller
percentage of average earnings and a smaller share of employees was award reliant.
The effect on inflation would be minimal due to the presence of offsetting
productivity improvements.
The Commission noted that no submissions sought either uniform percentage
SN increases or more generally increases which were higher at higher levels of
awards (para 156). The ACTU had advised the Commission that it should ignore
the fact that implementation of its claim would further compress relativities, but
that skill-based classification structures should not be allowed to wither on the
vine. The Commission reiterated that the compression of relativities via recent
SNAs would not be the basis for changes in relativities in future SNAs, when the
issue was addressed.
In mid-November 2002, the ACTU foreshadowed an application to the
Commission to increase all award workers’ pay by $24.60 per week at the
next Safety Net Review which would bring the federal minimum wage up to
$456 per week and would benefit 1.7 million workers on federal awards
(Ruse 2002a).
Executive salaries
In the year to June 2001, the income of high-ranking executives rose 13.4
per cent, compared with a mere 3.1 per cent rise in the wages for all employees.
Top executives now receive about 30 times the average annual wage, compared
to a ratio of less than six in the mid-1970s (Denholm 2002).
Research conducted by the Australian Council of Superannuation Investors of
64 of Australia’s top 100 companies concluded that there was no demonstrable
correlation either between CEO pay and the return on shareholders’ funds or
CEO pay and profits (Daily Telegraph 2002).
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Consulting firm Stern Stewart developed two measures of real improvements
in shareholder value: market value added, (MVA)—the difference between the
increase in market capitalisation and shareholders’ funds; and economic value added,
(EVA)—the annual profit minus the cost of all capital, including equity capital,
including off-balance sheet items. The average CEO pay rise of these companies
was 28 per cent, while, on average, MVA increased by 17 per cent and average
EVA fell by 111 per cent. Kohler (2002) claims that this inconsistency arises
because performance hurdles for executives are usually linked to reported
earnings, in which the cost of debt is included, but there is no deduction for the
cost of equity capital.
There is, however, a significant correlation between CEO remuneration and
directors’ fees (Cornell 2002). In their US research, Bebchuk et al. (2002), quoted
in Cornell (2002), support this argument, by claiming that the classical principal
agent mechanism which was aimed at maximising shareholder value was a chimera,
with executives having the capacity to influence their own compensation, by
extracting rents. Consequently executives are paid more than is optimal for shareholders and, to camouflage the extraction of rents, executive compensation is often
structured sub-optimally.
Kohler (2002) questions a remuneration system that is apparently required to
motivate executives. He argues that those CEOs in Australia would work for less
and would all work just as hard in the absence of the elaborate share and cash
bonus schemes, as long as they and members of their Boards were satisfied that
no comparable CEO was getting more than them. Thus their rates of remuneration have little genuine relationship to improvements in shareholder value, and
largely reflect boardroom psychology. Cornell (2002) quotes a remuneration
specialist who argues that the global pay structure is not the prime determinant
of most executive salaries. The regional market is the benchmark for most
jobs.
Kohler (2002) notes that the average CEO in the US earns 500 times that of
the average employee, but the crucial difference is that in the USA, all the details
of senior executive contracts must be revealed, including the nature of any
non-cash payments and the details of performance targets and how cash and
non-cash bonuses relate to them. In Australia the public is informed about
executive remuneration obtained in the previous year, but not its relationship to
performance targets. The performance targets which will underpin executive
remuneration in the future are also not revealed.
Kohler (2002) notes that the rash of large termination payouts lately has focused
attention on this poor disclosure in Australia. In many cases, Boards are required
by the employment contract to make large termination payments, no matter
how well the company has performed and sometimes the payouts are followed
by spectacular corporate collapses, such as OneTel, HIH and Pasminco. If
amortised back over the CEO’s term, these payments often represent a big
percentage increase on the annual salary. Total disclosure is essential, even if
accompanied by higher salaries. Easterbrook (2002) argues that the corporate
collapses and the inflated CEO remuneration packages in 2002 are linked, but
not via the need to issue positive earnings statements to satisfy the shareholders,
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but rather to inflate executive compensation. Shareholders now have little
influence over corporate behaviour and are vulnerable to making significant
losses. The claim by Bown (2002) that the intense scrutiny of corporate governance practices is promoting self-regulation by Australian companies, through the
review of their executive compensation programs, may be somewhat optimistic.
The federal government has been reluctant to tighten up corporate governance
practices.
INDUSTRIAL
RELATIONS AND LABOUR MARKET REFORM
During 2002, a number of legislative reforms were initiated by the federal government, which impacted on the wages and conditions of workers. The government
was keen to reinforce the decentralisation of wage setting, by diluting unions’
power, through outlawing pattern bargaining and union bargaining fees, and
applying pressure for the introduction of AWAs. On the other hand, in 2001
support was provided through the general employee entitlements and redundancy
scheme (GEERS) to unemployed workers whose entitlements were under threat
following corporate collapses. Paid maternity leave, which was proposed by the
HREO Commissioner has not been ruled out at the time of writing. The government remained resolute in attempting to scrap unfair dismissal laws for small
business, but was again frustrated in the Senate. This issue is outside the scope
of this article. The AIRC addressed the underpayment of Federal awards in
Victoria and also ruled on a test case brought by the ACTU on unreasonable
work hours.
Pattern bargaining
In June 2002, the Commonwealth Government passed the Workplace Relations
Amendment (Genuine Bargaining) Bill 2002 through the House of Representatives.
It was designed to outlaw pattern bargaining. This followed an earlier attempt
in 2000, which was stymied by the ALP and the Democrats in the Senate. Under
this bill, the Commission would be required to terminate a bargaining period
and the capacity to take protected industrial action if the parties were aiming
to reach common agreements across all or part of an industry (ACIRRT
2002c, p. 7).
ACIRRT (2002c) quotes the DEWR definition of pattern bargaining:
The process of pattern bargaining occurs where a party seeks common outcomes
on an all or none basis from agreements across a number of enterprises or workplaces, usually within the same industry or for multiple enterprises at a particular
project or site.
By outlawing this practice, the Commonwealth was attempting to quarantine
individual enterprise wage agreements, thereby minimising the flow on of
wage increases through the network of industrial awards by the tribunals which
had characterised wage explosions, including the one at the beginning of the
1980s.
In a study of enterprise agreements between January 2000 and December 2001,
the DEWR (2002) found a high concentration of what appeared to be pattern
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bargaining in the construction industry, and also the vehicle industry. ACIRRT
(2002c) is critical of the naïve manner by which pattern bargaining is identified
in the study, in the form of agreements covering different workplaces which
provide for identical outcomes in wages and/or employment conditions and/or
common expiry dates.
Following studies of these sectors, ACIRRT argues that the presence of
identical outcomes in wages and/or employment conditions and/or common
expiry dates in agreements covering different workplaces does not confirm
the existence of pattern bargaining. What is critical is not the presence of a
common set of demands, but the (in)ability of the parties to modify those demands
during enterprise negotiations. ACIRRT notes that the going rate constitutes a
benchmark, both with respect to workers’ fairness and firms’ competitiveness.
The intent of the legislation ignores employer-induced patterns that can result
from supply chains. ACIRRT claims that all bargaining systems contain elements
of pattern setting and workplace bargaining and so reject the bipolar perspective
of the DEWR, who contrast enterprise bargains and pattern bargains with the
latter driven by unions. They point to the European experience of coordinated
flexibility, whereby ‘decentralised bargaining is accompanied by various types of
‘social pacts’ (establishing bargaining rules and procedures without constraining
most industry, firm’ and workplace outcomes) and informal wage coordination’
(ACIRRT 2002c, p. 10).
Finally, the concept of competitiveness needs elaboration in this context. In
an economy dogged by unemployment, the persistence of wage inequality is facilitated in the absence of employers competing for workers (Watts 2001). Sustained
intra-industry wage inequality under a regime of enterprise bargaining implies
the presence of implicit wage subsidies to the low paying enterprises, thereby
frustrating the efficient allocation of resources. Thus uniform wage changes for
relatively homogeneous groups of workers promote fairness, a level playing field
and also the efficient allocation of resources. There have been no recent studies
of intra-industry wage outcomes to test whether enterprise bargaining, particularly since the Workplace Relations Act has led to more or less disparate wage
outcomes.4
Union bargaining fees
In February 2001, the AIRC approved the levying of a $500 service fee to
non-union members by the Electrical Trades Union in exchange for negotiating
wage increases. Later in 2001, the Federal Court ruled that AWU strike action
at Electrolux in Adelaide in support of the claim for a bargaining fee was illegal.
In mid-2002, however, the full bench of the Federal Court overturned the
earlier decision, ruling that unions and their members could pursue enterprise
agreements that included clauses outside the traditional employment relationship, such as a bargaining fee. The proposed fee was $500, in comparison to the
annual AWU membership fee of $350 (Gough 2002). The government may
appeal to the High Court against the decision.
Combet (2002b) argued that enterprise agreements must also be approved by
employers and the AIRC, which ensures compliance with freedom of association
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laws. Also unions have a legal obligation to negotiate enterprise agreements on
behalf of all employees in the workplace. This prevents discrimination. Corbett
(2001) notes that in principle a non-union member could negotiate either an individual AWA or a common law contract, but the employer may be disinclined to
conduct negotiations with members of its workforce under different processes.
Union members on average earn $99 a week, or 15 per cent, more than
non-members (Combet 2002b). He also points to the broader coverage of
entitlements enjoyed by union members with 89 per cent receiving annual leave,
versus 72 per cent for non-union members, sick leave (90 per cent versus 72
per cent), and long service leave (85 per cent versus 62 per cent). Union coverage
is very uneven across industries and occupations, with their representation
being greatest in those industries where these entitlements are customary. Most
unions saw the fee as consistent with the user pays principle and a tool to
stimulate flagging membership, particularly with the fee often set above annual
union dues.
Pressure to introduce AWAs
One of the criteria (1c) for an Australian University to satisfy to secure funding
in the second round of the Workplace Reform Programme in 2001 was the
demonstration that it has agreements which provide for Australian Workplace
Agreements (AWAs) to be made with staff.
In December 2002, public sector unions resolved to resist plans by the federal
government which were allegedly designed to force new public servants to sign
AWAs. It is claimed that long-term employees could be bypassed for promotion
if they refuse to sign them. Only about 7000 public servants in a total workforce
of about 123 000 have signed AWAs. The rest are covered by 100 certified agreements, mostly negotiated by unions (Phillips 2002).
Workers’ entitlements
Early in 2002, Ansett collapsed for a second time, leading to further job losses
and a threat to the entitlements of those who had lost their jobs. This led again
to questions of corporate accountability with respect to the obligation to disclose
information to employees about the state of the business and the future of
their jobs (Long 2002), in addition to the design of mechanisms to guarantee
workers’ entitlements, after corporate collapses. One particular issue is whether
workers should have priority over other creditors. This would require the
Coalition Government to change Corporations law. This was under consideration at the end of 2002.
In December, the ACTU intensified the debate over entitlements by launching a national test case on redundancy pay. It sought to double the existing safety
net underpinning GEERS to 16 weeks for all employees with more than six years’
service, instead of the eight weeks under awards applying federally and in
most states (Robinson 2002b). Under the claim, workers aged over 45 would be
entitled to up to 20 weeks’ redundancy pay. In addition, the ACTU tried to extend
redundancy pay to casual workers who had worked for the same employer for
more than 12 months. Casual employment represents about 25 per cent of
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total employment, and about 60 per cent of them (1.2 million) have worked
for long periods with the same employer. The ACTU argued that the present
eight-week cap on redundancy pay was inadequate given that the average period
of unemployment after redundancy was 22 weeks. For over 45-year-olds, the
average duration of unemployment was 96 weeks. The ACTU also sought to
require employers to consult their staff before redundancies (Owen-Brown 2002).
In 1998, the Howard Government had stripped consultation provisions from
awards (Combet 2002a).
Long (2002) notes that most European countries require companies over a
certain size to establish works councils, comprised of employee representatives,
to give employees a voice in decisions about the nature of work and the future
of the business. As noted above, the managerial prerogative to act without
consultation and in secrecy persists in Australia.
Buchanan and Briggs of Sydney University found that ‘joint consultative
committees’ in best practice companies failed to reduce downsizing and work
intensification or give employees a voice. Long (2002) concludes that works
councils would be effective if strong sanctions underpinned their operation, such
as executives being stripped of rights to hold directorships or manage businesses,
in the event of failing to consult and inform employees.
The federal government’s current general employee entitlements and redundancy scheme (GEERS) for workers is redundancy payments of up to eight weeks’
pay, plus full payment of unpaid wages, annual leave, long service leave and full
payment of unpaid pay in lieu of notice. This scheme is supported by the
AiG (Skulley 2002). On the other hand, the ACTU proposed that a nationally
legislated entitlement guarantee scheme, funded at low cost through an employer
levy, would guarantee the security of entitlements (Combet 2002a). If the
test case succeeds in lifting the minimum redundancy rate, the ACTU would
request the Commonwealth to raise the cap on payments under GEERS
commensurately.
Two corporate collapses in Melbourne before Christmas led the Australian
Manufacturing Workers Union to launch a national campaign to start in 2003
to secure workers’ entitlements through an industry trust fund, bank guarantees
and a portable long service leave fund (Robinson & Gray 2002).
Maternity leave
The Federal Workplace Relations Act 1996 provides for 52 weeks unpaid maternity
leave for all workers. In May 2001, unions secured unpaid maternity and
parental rights leave for more than two million casual workers (ACIRRT
2002a, p. 12). Access to unpaid parental leave for an increasing proportion of
the workforce has been important in encouraging women’s retention in the
workforce after childbirth, but has done little to reduce the financial disadvantage
faced by women who take time off work when they have a baby (ACIRRT,
2002a, p. 7).
Australia and the United States are now the only OECD countries that do not
offer a universal system of paid maternity leave. Most other countries rely on the
social security system or unemployment insurance to fund periods of leave that
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average around the International Labour Organisation’s convention of 14 weeks
(Watts 2002).
In April 2002, the HREO commissioner presented options for extending paid
maternity leave in a discussion paper (Goward 2002a). Also the Australian
Democrats tabled amendments to the Workplace Relations Act to incorporate paid
maternity leave.
In a subsequent submission to HREOC, the Womens Electoral Lobby (WEL)
outlined a number of compelling benefits to mothers resulting from the introduction of paid maternity leave, including maternal health, economic security,
childbirth as a valid leave entitlement, gender equity with respect to conditions
of employment, such as leave entitlements, and the long term benefits of employment continuity, via ongoing training and career progression. The WEL also
recognised that continuity of employment for women following paid leave would
confer major benefits for employers, including reduced recruitment and training costs; improved staff morale and productivity; and improved organisational
efficiency through the benefits of long service, for example institutional
memory, industry knowledge, networks and contacts. The WEL noted that there
is precedence for the federal government to underwrite employee entitlements,
including the GEERS scheme described above, as well as some governmentfunded industry-specific subsidies (WEL 2002).
In December, Goward (2002b) recommended that, to compensate for lost
earnings, working women should receive 14 weeks paid maternity leave at the
minimum wage of $431 a week, or their average previous weekly earnings from
all jobs, whichever is the lesser amount (Goward 2002b). The payment would
not be means tested. Goward argued that the federal government should fund
the scheme for all women who had been in paid employment for 40 of the
52 weeks before the birth of their child. Employers should be encouraged to
continue existing provisions for paid maternity leave and likewise women,
including public servants, should not be excluded from any government funded
national scheme on the basis of already receiving paid maternity leave in the
workplace.
Recipients of paid maternity leave would not be eligible for welfare payments
which would continue to provide financial support for those mothers who had
not maintained their rate of participation in employment. The offsets associated
with the current welfare schemes would reduce the net cost of the scheme to
$213 million in 2003 and support 85 000 mothers (Buffini 2002). A review of
the operation of the scheme was recommended for three years after its
implementation.
It was estimated that the scheme would replace two-thirds of the income lost
by 73 per cent of all women in paid work for the first 14 weeks of the baby’s life.
On the other hand, women who earned average wages currently received only
$78 a week in welfare benefits at the time of birth, and sacrificed their incomes
from paid work (Buffini 2002).
Unions, women’s groups, small business councils and the nation’s largest
industry representative, the AiG, all backed the plan, but the Australian
Chamber of Commerce and Industry rejected the scheme, despite its public
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funding, after claiming that unions would bring top-up claims unless there
were changes to industrial laws. The top up provision through the bargaining
process was canvassed in Goward’s report (Recommendation 10). The Coalition
Government remained non-committal on whether paid maternity leave would
be introduced in 2003.
Federal funding or the imposition of an employer levy would be required to
implement any universal scheme of paid maternity leave, otherwise employers
would be reluctant to hire women of child bearing age. The argument that
maternity leave arrangements should be negotiated at the workplace level ignores
the substantial disparity in the incidence of such arrangements. ACIRRT (2002a,
p. 12) reports that paid maternity leave provisions are present in only 6.7 per
cent of collective agreements and less than 1 per cent (0.7 per cent) of AWAs
mainly in the private sector. ABS unpublished data showed that the incidence
also varies markedly across industries with Government Administration and
Defence (68.1 per cent) and Communication Services (59.1 per cent) having
the highest incidence, whereas the lowest coverage of was found in Agriculture
(4.5 per cent) and Accommodation, Cafes and Restaurants (13.4 per cent). Access
to paid maternity leave was higher the greater an employee’s length of service
with an employer. In total, 38 per cent of female employees confirmed that
they were entitle
IN 2002
MARTIN J. WATTS*
I
n this review, we provide a description of the macroeconomic environment prevailing
in 2002, as a backdrop to an analysis of movements in wages, with particular
reference to the Safety Net Adjustment in May. We conclude that there is no evidence
of an acceleration of wage growth in 2002. A number of rulings and legislative changes
that impact on wage setting are assessed.
INTRODUCTION
The share of employees on awards only continued to diminish in 2002, with the
main increase in coverage being the number of workers on individual registered
and unregistered agreements. Aggregate wage growth remained modest and
provoked little direct comment from the Reserve Bank of Australia (RBA) in its
quarterly statements on monetary policy. The federal government tried to
curtail what they perceived to be pattern bargaining by amending the
Workplace Relations Act 1986.
The Industrial Relations Commission awarded a flat $18 increase at the annual
Safety Net Case in May. This increase provoked the usual round of criticisms by
conservative politicians and industry leaders. Public attention was mainly
focused on executive payouts, which had preceded some of the corporate collapses
in 2001 and 2002. At the same time, workers were trying to secure their entitlements against economic, legal and political obstacles. A decision by the Full Bench
of the Federal Court overturned an earlier decision that had outlawed strike action
by the Australian Workers Union (AWU) in support of the imposition of
bargaining fees. The year ended with recommendations by the Human Rights
and Equal Opportunity Commissioner (HREOC) about the provision of
federally funded paid maternity leave (Goward 2002b), but the government
remained non-committal about whether to support the proposal.
In the following section, I shall examine the macroeconomic environment
within which wage setting took place. This will be followed by an examination
of wage outcomes in 2002. In the penultimate section, I shall outline key developments in industrial relations and labour market legislation, along with decisions
of the AIRC, which have impacted on the wages and conditions of Australian
workers. Concluding comments are provided in the final section.
* Centre of Full Employment and Equity, The University of Newcastle, Callaghan, NSW 2308,
Australia. Email: Martin.Watts@Newcastle.edu.au
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BACKGROUND
Macroeconomic forecasts play a key role in the annual deliberations of the
Australian Industrial Relations Commission (AIRC) on the appropriate safety net
adjustment for award-reliant workers. In addition, these forecasts influence the
level of the cash rate set by the RBA and hence, the structure of interest rates,
which impact on households’ living standards.
The RBA (2002b) noted that growth prospects for the world economy
exhibited two distinct phases during 2002, with a gradual recovery expected
during the first six months, which was followed by slower growth in the second
half of the year.
In its assessment released in September, the International Monetary Fund
(IMF) forecast of world growth for 2003 was 3.7 per cent, as compared to
2.8 per cent in 2002. The Australian economy proved to be more resilient with
the growth rate being 3.7 per cent in the 12 months to September 2002, which
was largely driven by the growth of domestic demand via the sustained growth
in consumption, a revival in business investment and the boom in the housing
sector (ABS 2002a).
Monetary policy
At its May meeting, the RBA Board raised the cash rate by 25 basis points from
a low of 4.25 per cent. The Australian economy had been maintaining a reasonable
growth rate and prospects for the world economy were continuing to improve.
The Board feared that ‘maintaining the cash rate at such a low level risked amplifying inflationary risks and fuelling other imbalances that could jeopardise a continuation of the current economic expansion’. (RBA 2002a).
This increase and the subsequent 25 basis point increase in June 2002 were
further examples of the RBA’s pre-emptive approach to monetary policy, despite
the absence of any firm evidence about rising inflation. There is a consensus across
a broad range of macroeconomic research that a recession has a long-standing
deleterious impact on the economy through persistently higher unemployment.
Disagreement persists over which rates of economic growth and inflation are
sustainable in Australia.
Over the 12 months up to September, the headline rate of inflation of
3.2 per cent remained within the acceptable band defined by the RBA (2002b,
p. 50). There was little pressure from rising wage costs. The bank’s assessment
was that the underlying inflation rate was about 2.75 per cent,1 which would continue in 2003, given the weak, but uncertain, outlook for the global economy.
The bank correctly anticipated that the actual rate would be higher in the short
term, reflecting the influence of the drought on food prices.
WAGE
DETERMINATION IN
2002
In this section, we examine the coverage of different forms of wage determination and the associated rates of money wage growth. The Safety Net case in
May is subject to a detailed analysis along with the ongoing debate about the
high level of executive salaries.
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Coverage and content of agreements
There are three major sources of Australian data on the different types of extant
agreement. Preliminary Australian Bureau of Statistics (ABS) data on employee
earnings are available for May 2002 (ABS 2002b), but have limited data on different types of agreement. The Department of Employment and Workplace
Relations (DEWR 2002) collects data on registered federal agreements and the
Australian Centre for Industrial Relations Research and Training (ACIRRT)
collects data on registered state and federal agreements.
The first comprehensive ABS data set on the distribution of employees across
different types of federal and state agreements and the associated rates of pay
was released in March 2001 and was based on a survey conducted in May 2000
(ABS 2000). In May 2000, 23.2 per cent of workers were covered by awards only,
36.7 per cent by registered and unregistered collective agreements, and the
remainder by registered and unregistered individual agreements. By comparison, in May 2002, there were 21 per cent of all employees on awards only,
representing 25.1 per cent of private sector employees and five per cent of
public sector employees, and 37 per cent of all employees were covered by
collective agreements (ABS 2002b).2 Thus, the coverage of individual agreements,
including common law contracts and registered individual agreements such as
Australian Workplace Agreements, increased faster than collective agreements.
In May 2002, there was a positive relationship between the incidence of collective agreements and the number of employees per enterprise. On the other hand,
there was a greater incidence of individual agreements in enterprises with fewer
employees.
At the end of September 2002, there were 14 450 federal wage agreements
covering an estimated 1 537 700 employees, who represented approximately
16.5 per cent of all employees, whereas there were 11 755 federal wage agreements current in September 2001, covering an estimated 1 362 100 employees
(DEWR 2002). At the end of 2001, the approved AWAs covered over 215 000
workers across 3 746 separate organisations (DEWR 2002). Since 1998,
88 per cent of AWAs have been lodged by the private sector. At the end of 2001,
the retail trade accounted for 17 per cent of AWAs, property and business
services (16 per cent), transport and storage (10 per cent) and the government
administration and defence (10 per cent).
Money wage growth
Since the advent of enterprise bargaining, aggregate wage data have been
difficult to interpret. Many employees have unregistered agreements, wage
increases may be granted in exchange for trade-offs with respect other conditions
and there are major compositional changes occurring in the workforce (Burgess
1995). For example, in the Agreements Database and Monitor (ADAM) reports
for June and December 2002, it was noted that the agreements that involved
high wage increases often entailed the absorption of allowances and overtime
(ACIRRT 2002a, p. 4; ACIRRT 2002c, p. 2). Also, there was an emergence of
low guaranteed wage increases, combined with high at risk wage increases, which
were linked to Key Performance Indicators (KPIs) (ACIRRT 2002c, p. 3).
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2002
However, from the diverse sources of wage data analysed below, there is no
compelling evidence of an acceleration of wage growth in 2002.
No meaningful comparisons are possible of wage data across different types
of agreement from the ABS publications (2000 2002b). The computed average
rates of annualised wage growth across the different types of agreement are
implausible, which suggests that the statistical noise from including all workers
of all ages, who are working part-time and full-time, is considerable.
Full-time adult Average Weekly Ordinary Time Earnings (AWOTE) rose
4.9 per cent in the 12 months to August 2002, while male and female AWOTE
rose by 4.6 per cent and 5.1 per cent respectively (AUSSTATS). The full-time
adult AWOTE of $879.4 in August 2002 was more than double the federal
minimum wage of $431.40. The annual increases in full-time adult AWOTE
ranged from 9.8 per cent for Manufacturing, 7.6 per cent in Property and Business
services to -1.62 per cent in Transportation and Storage, with the latter figure
suggesting a change in weekly hours worked or compositional change within
the industry.
Table 1 Annual percentage increases in ordinary time hourly rates of pay index, excluding bonuses, by industry, September 2000–2002
From quarter of corresponding year
Sep 00
Sep 01
Sep 02
Mining
Manufacturing
Electricity, gas
and water supply
Construction
Wholesale trade
Retail trade
Accommodation, cafes
and restaurants
Transport and storage
Communication services
Finance and insurance
Property and
business services
Government administration
and defence
Education
Health and community
services
Cultural and recreational
services
Personal and other services
All industries
Source: ABS (2002c), Table 10.
2.6
3.0
3.9
2.9
3.8
4.4
4.3
3.4
4.0
4.5
3.3
2.7
2.9
3.6
3.0
2.3
3.0
3.0
3.5
3.3
3.0
2.7
3.0
3.2
3.6
3.1
4.1
3.8
4.4
2.4
3.0
3.5
3.3
2.7
3.6
2.8
3.2
2.4
4.4
3.5
3.8
3.0
2.9
3.1
3.4
3.0
3.1
3.3
3.6
3.6
3.3
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During 2002, wage growth, as measured by the fixed weight Wage Cost Index,
was 3.3 per cent in the year to September 2002 (ABS 2002c).3 This was beneath
the RBA’s target band of 3.5–4.5 per cent and represents a slight moderation of
the rate compared to the year to September 2001. There was little difference
between the growth rates for the public and private sectors, although simple
comparisons must be made with caution because their respective occupational
compositions differ markedly. Table 1 shows the annual percentage change in
the wage cost indexes by industry. The fixed weights appear to significantly reduce
the wage variability.
Data from DEWR show that since September 2000, the average annualised
increase for all existing agreements has exhibited a very slow trend increase
from 3.6 per cent. DEWR (2002) also reported that there was no evidence of
an acceleration of wage growth during 2002, with federal wage agreements
formalised in the September quarter paying an average annualised wage increase
(AAWI) of 4.1 per cent, up from 3.6 per cent in the June quarter. Utilising
the employment weights associated with June 2002, DEWR estimate that
0.3 percentage points of the increase represents compositional change.
Figure 1 shows quarterly AAWIs per employee across groups of industries for
new agreements certified in the corresponding quarter across industry groups
from March 1998 to September 2002, based on DEWR data. These new wage
agreements, while exhibiting considerable volatility provide some indication
of recent developments in the wages system, although in September 2002, for
example, they only represented 9.5 per cent of extant agreements.
Construction and manufacturing consistently yield the highest AAWIs.
Agriculture and mining exhibit extreme volatility that probably reflects the
relatively few agreements finalised in each quarter. Commercial services have
generally exhibited the lowest AAWI, but this group comprises somewhat heterogeneous industries, ranging from Wholesale and Retail Trade to Finance and
Insurance.
ACIRRT (2002c, p. 5) reports an average annual percentage wage increase of
4 per cent, based on a sample of state and federal agreements, operating at the
end of the September quarter 2002. This rate of increase has remained relatively
stable. The construction industry continued to lead the wage outcomes, with
an average annual wage increase of 4.5 per cent, as compared to the mining
industry with the lowest average annual wage increase of 3.4 per cent. Mining
continued to pay the highest weekly wages to full-time employees, except nonmanagerial juniors.
ACIRRT (2002a, pp. 3–4) explore the factors that contribute to the size of
wage increases in agreements operating at the end of December 2001. Past outcomes, including economic growth, productivity growth and inflation, are taken
into account along with future outcomes, including inflation, productivity growth,
individual staff performance appraisals and safety net adjustments for award reliant
workers. The analysis of the ADAM database revealed that CPI growth and Safety
Net Adjustment (SNAs) were more commonly used than individual performance
appraisals. Less than 6 per cent of agreements specified SNAs as the sole basis
of wage adjustment. On the other hand, while AWAs used CPI movements
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and SNAs as the main factors, there was a greater reliance on performance
linked factors.
Gender wage ratio
There have been fluctuations in the gender AWOTE ratio for full-time adults
over the last decade, but it has remained between 83 and 85 per cent, based on
a four quarter moving average (Preston 2001). In August 2002 the ratio for the
four quarter moving average was 84.7 per cent (AUSSTATS, own calculations).
Examination of the gender ratio, since mid-1996 reveals a steadily increase, but
the separate computations of gender AWOTE ratios across industries for
the period August 1996 (gender ratio 83.01) to August 2002 (84.72) suggests
that compositional change has been significant in the overall rise in the gender
ratio of 2.06 per cent, since seven of the 16 ANZSIC industries exhibited a decline
in their gender ratios. Further analysis of this issue is beyond the scope of
this review.
Figure 1. AAWI per Employee of Federal Agreements certified within the Quarter
by Industry Group, March 1998-September 2002
Notes: Manufacturing and construction are equivalent to the ANZSIC industries. Commercial services:
Wholesale; Retail; Accommodation, Cafes and Restaurants; Transport; Communications; Electricity, Gas
and Water, Finance and Insurance, Property and Business; Cultural and Recreation; and Personal and
Other. Non-commercial services: Education and Health, Government Administration and Defence and
Community Services.
The estimates have been rounded since June 1999. Historical estimates have been revised, so the Figure
may exhibit slight differences as compared to Figure 1 in Watts (2002).
The AAWIs are calculated as a weighted sum of the AAWIs per employee per ANZSIC industry with
the weights given by the corresponding employment shares.
Source: DEWRSB (2002, various issues), author’s calculations.
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Living Wage case
In November 2001 the ACTU filed its Living Wage claim under the Workplace
Relations Act 1996. The peak body requested a $25 per week increase in all award
rates of pay with an equivalent increase in allowances (AIRC 2002, para. 1). The
Labor state governments (LSG) supported the ACTU’s claim, but gave the
Commission some latitude to reduce the adjustment to awards in the event of a
deterioration in the economic outlook (AIRC 2002, para. 14).
The Commonwealth argued that a $10 increase should be available on
application to minimum classification rates at or below the C10 classification
($507.2) with the increase to be fully absorbed into over-awards, including those
from enterprise agreements and informal over-awards (AIRC 2002, para. 13).
The industry groups generally favoured an increase of $10 per week, which was
to be confined to lower paid workers (AIRC 2002, paras 3–11).
Under the Workplace Relations Act 1996, s. 88B(2)b), in setting appropriate
minimum rates of pay, the AIRC is required to have regard to ‘economic factors,
including levels of productivity and inflation, and the desirability of attaining a
high level of employment’, but also to take into account the need to provide
fair minimum standards for employees in the context of general Australian
living standards and the needs of the low paid (para. 119).
An analysis of the arguments presented to the Commission is insightful because
it conveys the underlying beliefs of the major players about the functioning of
the wage system. However, the participants tend to embellish and repeat their
arguments from previous Safety Net Cases.
The major issues addressed in the submissions included:
1. the impact of the ACTU’s demand on the macroeconomy and different
sectors;
2. the appropriateness of the wage system, rather than the tax transfer system,
in addressing the needs of the low paid; and
3. the coverage of the SNA.
We address each of these issues briefly below.
1. Economic impact
The Commission received submissions that addressed both the macroeconomic
and microeconomic (sectoral) impact of safety net increases. After detailed
analysis of official economic data and economic forecasts (paras 20–74), the
AIRC concluded that the outlook for the Australian economy was generally
positive, with economic growth strengthening over 2002–2003. The projections
for inflation were modest and within the range of two to three per cent. The
AIRC acknowledged that there was uncertainty about the international outlook
and its implications for the trade sector, which the Commonwealth had also
emphasised (AIRC 2002, para. 22). Hourly productivity growth in the market
sector had strengthened in the second half of 2001. The Commission was not
persuaded that the decisions in May 2000 and May 2001 had materially affected
employment growth (AIRC 2002, para. 102). The Commission concluded that
in light of the positive economic outlook and notwithstanding the uncertainty
about the world economy, the Australian economy could withstand reasonable
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improvements in the safety net of minimum wages without undermining the
modest inflation rate (para. 126).
The Commission noted that that the ACTU and Commonwealth estimates
of the gross direct impact of the ACTU claim were similar, being in the range of
0.5–0.59 per cent. In assessing the proposed claim against current economic
indicators, they argued that the estimated net impact on aggregate wage growth
was relevant. The Commission was skeptical of the estimates from the federal
government and industry groups of the magnitude of the (indirect) flow on to
employees covered by agreements under which they were not directly entitled
to the safety net increases. The evidence provided to the Commission suggested
that this impact would be limited.
The Commission acknowledged the sectoral impacts of minimum wage
adjustment but argued that the consideration of national economic factors was
of prime importance, rather than the circumstances of particular enterprises.
The Economic Incapacity Principle was an appropriate mechanism for the
examination of departures from the SNAs (para. 122).
There was no evidence that productivity growth was greater in firms paying
bargained increases, which would have justified a degree of caution in the safety
net adjustment, due to its potentially adverse impact on some sectors with a high
degree of award reliance. Indeed evidence provided by the Australian Industry
Group suggested that sectors characterised by high award reliance, such as wholesale, retail and hospitality, had contributed to the improved productivity growth
during the previous decade (AIRC 2002, para. 104). Also employment in the award
reliant industries of accommodation, cafes and restaurants and the retail sector
had risen faster than average, particularly since late 1996.
2. Wage inequality and the social security system
The Commonwealth (2002, Chapter 6) again ran the argument that the wages
system had a limited means of meeting social equity goals and that the tax
transfer system provided more targeted assistance. Further, unemployment
was a major source of poverty, and any sizeable increase in minimum wages
was asserted to undermine employment opportunities for many low skilled
employees and new workforce entrants.
The Coalition Government has shown little interest in restructuring the tax
transfer system, although the Workplace Relations Minister Abbott in a speech
to the Young Liberals Annual Conference in January 2003 addressed at some
length the issue of the work disincentives resulting from the interaction of the
tax transfer system with the wages system (Abbott 2003).
The AIRC viewed minimum award wages and the social wage as interdependent
and complementary means of addressing the needs of the low paid (para. 144).
The Commission quoted Saunders (2001) who argued that the compensation of
employees was the most important source of income, in aggregate and for most
households with an employed member, so that safety net increases do assist in
meeting the needs of the low paid. This claim misses the point because the
argument of the Commonwealth and some industry groups is typically based on
the efficiency at the margin of raising minimum awards, as compared to manipu-
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lating the tax transfer system. However, these groups fail to recognise the dynamic
inefficiency of imposing constant money wages for a period of time on a sizeable share of the workforce (Mitchell & Watts 2002, p. 97). Also, in their focus
on generating the right structure of incentives for the jobless, they ignore the
absence of job opportunities for them.
By arguing that SNAs were a limited means of achieving social equity, the
Commonwealth appears to be trying to marginalise the Living Wage case, thereby
gaining greater discretion to determine the degree of economic inequality within
the Australian economy, through manipulation of the tax transfer system.
The Commonwealth’s statement about the significance of unemployment in
determining the extent of poverty was somewhat disingenuous, given that its tight
monetary and fiscal policies in the form of high interest rates and budget
surpluses have been a major cause of persistent unemployment in Australia
(Mitchell 2001). Further, rather than viewing persistent unemployment as a
collective problem, the Coalition Government (and the previous Labor
Government) has managed to construe unemployment as an individual shortcoming thereby justifying the principle of mutual obligation, with its punitive
treatment of the unemployed.
3. Coverage of the SNA
The Commonwealth (2002, 7.2) argued that restricting safety net increases to
Classification C10 and below, maintained the incentive of workers in higher
classifications to engage in workplace bargaining, whereas workers on a classification below C10 had a limited capacity to bargain. Thus the C10 cap was viewed
as critical to the spread of agreement making, which was asserted (without any
supporting evidence) to be a major factor underpinning the strong productivity
improvements which had contributed to the resilience of the Australian economy
in a difficult international economic environment (Commonwealth 2002, 7.14).
The evidence from the AiG outlined above, which noted the contribution of the
award reliant sectors to economy productivity growth, would appear to challenge
this claim.
The Commonwealth (2002, 7.15) noted that the principal object of the
Workplace Relations Act 1996 is to provide a framework for cooperative workplace
relations. By not imposing the C10 cap, the Commission would be failing to give
due weight to the legislative requirement to encourage agreement making and
promote enterprise level workplace relations. In its discussion of its decision the
AIRC noted that the Commonwealth had provided material indicating that
the number of employees covered by agreements had shown steady growth
(para. 162), so that it was not evident that the comprehensive coverage of
SNAs was inhibiting agreement making.
The Commonwealth also reiterated the claim made in its 2001 SNA submission
that much of the benefit of uncapped safety net adjustments flowed unnecessarily
to middle and high income families, rather than being received by genuinely low
paid workers. The Commission argued that SNAs do assist in meeting the needs
of low paid, even though they are not perfectly targeted and that none of the
material presented to the 2002 case altered its view.
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Also the AIRC referred to the terms of s. 88A(b) of the Act which were also
addressed in last year’s decision. This requires that a Safety Net of fair minimum
wages be maintained for all award reliant employees, and not just those classified
at or below the C10 level (para. 159, see also Watts, 2002, pp. 236–38). The
Commission’s failure to adjust all awards would mean that relative awards would
no longer reflect the skill, responsibilities and conditions of employment associated with different jobs. Some awards would become increasingly irrelevant to
wage determination and no longer a benchmark for the no disadvantage test. If
the problems of the low paid were to be resolved via work related benefits indexed
to average wage growth to allow for real growth, then employees on higher
awards, who were unable to negotiate wage increases, would still be neglected,
due to the likelihood of being ineligible for the work related benefits.
In its sixth Safety Net Adjustment since the Workplace Relations Act 1996, the
Commission (2002, paras 160–4) awarded an $18.00 per week increase in all award
rates. The federal minimum wage was increased to $431.40 per week. The usual
conditions applied which including the full absorption of the award in over-awards
where possible, and the phasing in of the increase no less than 12 months after
the increases provided for in the May 2001 decision. The AIRC concluded (2002,
para. 161) that the gross impact on aggregate wages growth would be similar to
that arising from the 2001 SNA decision. The flat increase was a smaller
percentage of average earnings and a smaller share of employees was award reliant.
The effect on inflation would be minimal due to the presence of offsetting
productivity improvements.
The Commission noted that no submissions sought either uniform percentage
SN increases or more generally increases which were higher at higher levels of
awards (para 156). The ACTU had advised the Commission that it should ignore
the fact that implementation of its claim would further compress relativities, but
that skill-based classification structures should not be allowed to wither on the
vine. The Commission reiterated that the compression of relativities via recent
SNAs would not be the basis for changes in relativities in future SNAs, when the
issue was addressed.
In mid-November 2002, the ACTU foreshadowed an application to the
Commission to increase all award workers’ pay by $24.60 per week at the
next Safety Net Review which would bring the federal minimum wage up to
$456 per week and would benefit 1.7 million workers on federal awards
(Ruse 2002a).
Executive salaries
In the year to June 2001, the income of high-ranking executives rose 13.4
per cent, compared with a mere 3.1 per cent rise in the wages for all employees.
Top executives now receive about 30 times the average annual wage, compared
to a ratio of less than six in the mid-1970s (Denholm 2002).
Research conducted by the Australian Council of Superannuation Investors of
64 of Australia’s top 100 companies concluded that there was no demonstrable
correlation either between CEO pay and the return on shareholders’ funds or
CEO pay and profits (Daily Telegraph 2002).
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Consulting firm Stern Stewart developed two measures of real improvements
in shareholder value: market value added, (MVA)—the difference between the
increase in market capitalisation and shareholders’ funds; and economic value added,
(EVA)—the annual profit minus the cost of all capital, including equity capital,
including off-balance sheet items. The average CEO pay rise of these companies
was 28 per cent, while, on average, MVA increased by 17 per cent and average
EVA fell by 111 per cent. Kohler (2002) claims that this inconsistency arises
because performance hurdles for executives are usually linked to reported
earnings, in which the cost of debt is included, but there is no deduction for the
cost of equity capital.
There is, however, a significant correlation between CEO remuneration and
directors’ fees (Cornell 2002). In their US research, Bebchuk et al. (2002), quoted
in Cornell (2002), support this argument, by claiming that the classical principal
agent mechanism which was aimed at maximising shareholder value was a chimera,
with executives having the capacity to influence their own compensation, by
extracting rents. Consequently executives are paid more than is optimal for shareholders and, to camouflage the extraction of rents, executive compensation is often
structured sub-optimally.
Kohler (2002) questions a remuneration system that is apparently required to
motivate executives. He argues that those CEOs in Australia would work for less
and would all work just as hard in the absence of the elaborate share and cash
bonus schemes, as long as they and members of their Boards were satisfied that
no comparable CEO was getting more than them. Thus their rates of remuneration have little genuine relationship to improvements in shareholder value, and
largely reflect boardroom psychology. Cornell (2002) quotes a remuneration
specialist who argues that the global pay structure is not the prime determinant
of most executive salaries. The regional market is the benchmark for most
jobs.
Kohler (2002) notes that the average CEO in the US earns 500 times that of
the average employee, but the crucial difference is that in the USA, all the details
of senior executive contracts must be revealed, including the nature of any
non-cash payments and the details of performance targets and how cash and
non-cash bonuses relate to them. In Australia the public is informed about
executive remuneration obtained in the previous year, but not its relationship to
performance targets. The performance targets which will underpin executive
remuneration in the future are also not revealed.
Kohler (2002) notes that the rash of large termination payouts lately has focused
attention on this poor disclosure in Australia. In many cases, Boards are required
by the employment contract to make large termination payments, no matter
how well the company has performed and sometimes the payouts are followed
by spectacular corporate collapses, such as OneTel, HIH and Pasminco. If
amortised back over the CEO’s term, these payments often represent a big
percentage increase on the annual salary. Total disclosure is essential, even if
accompanied by higher salaries. Easterbrook (2002) argues that the corporate
collapses and the inflated CEO remuneration packages in 2002 are linked, but
not via the need to issue positive earnings statements to satisfy the shareholders,
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but rather to inflate executive compensation. Shareholders now have little
influence over corporate behaviour and are vulnerable to making significant
losses. The claim by Bown (2002) that the intense scrutiny of corporate governance practices is promoting self-regulation by Australian companies, through the
review of their executive compensation programs, may be somewhat optimistic.
The federal government has been reluctant to tighten up corporate governance
practices.
INDUSTRIAL
RELATIONS AND LABOUR MARKET REFORM
During 2002, a number of legislative reforms were initiated by the federal government, which impacted on the wages and conditions of workers. The government
was keen to reinforce the decentralisation of wage setting, by diluting unions’
power, through outlawing pattern bargaining and union bargaining fees, and
applying pressure for the introduction of AWAs. On the other hand, in 2001
support was provided through the general employee entitlements and redundancy
scheme (GEERS) to unemployed workers whose entitlements were under threat
following corporate collapses. Paid maternity leave, which was proposed by the
HREO Commissioner has not been ruled out at the time of writing. The government remained resolute in attempting to scrap unfair dismissal laws for small
business, but was again frustrated in the Senate. This issue is outside the scope
of this article. The AIRC addressed the underpayment of Federal awards in
Victoria and also ruled on a test case brought by the ACTU on unreasonable
work hours.
Pattern bargaining
In June 2002, the Commonwealth Government passed the Workplace Relations
Amendment (Genuine Bargaining) Bill 2002 through the House of Representatives.
It was designed to outlaw pattern bargaining. This followed an earlier attempt
in 2000, which was stymied by the ALP and the Democrats in the Senate. Under
this bill, the Commission would be required to terminate a bargaining period
and the capacity to take protected industrial action if the parties were aiming
to reach common agreements across all or part of an industry (ACIRRT
2002c, p. 7).
ACIRRT (2002c) quotes the DEWR definition of pattern bargaining:
The process of pattern bargaining occurs where a party seeks common outcomes
on an all or none basis from agreements across a number of enterprises or workplaces, usually within the same industry or for multiple enterprises at a particular
project or site.
By outlawing this practice, the Commonwealth was attempting to quarantine
individual enterprise wage agreements, thereby minimising the flow on of
wage increases through the network of industrial awards by the tribunals which
had characterised wage explosions, including the one at the beginning of the
1980s.
In a study of enterprise agreements between January 2000 and December 2001,
the DEWR (2002) found a high concentration of what appeared to be pattern
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bargaining in the construction industry, and also the vehicle industry. ACIRRT
(2002c) is critical of the naïve manner by which pattern bargaining is identified
in the study, in the form of agreements covering different workplaces which
provide for identical outcomes in wages and/or employment conditions and/or
common expiry dates.
Following studies of these sectors, ACIRRT argues that the presence of
identical outcomes in wages and/or employment conditions and/or common
expiry dates in agreements covering different workplaces does not confirm
the existence of pattern bargaining. What is critical is not the presence of a
common set of demands, but the (in)ability of the parties to modify those demands
during enterprise negotiations. ACIRRT notes that the going rate constitutes a
benchmark, both with respect to workers’ fairness and firms’ competitiveness.
The intent of the legislation ignores employer-induced patterns that can result
from supply chains. ACIRRT claims that all bargaining systems contain elements
of pattern setting and workplace bargaining and so reject the bipolar perspective
of the DEWR, who contrast enterprise bargains and pattern bargains with the
latter driven by unions. They point to the European experience of coordinated
flexibility, whereby ‘decentralised bargaining is accompanied by various types of
‘social pacts’ (establishing bargaining rules and procedures without constraining
most industry, firm’ and workplace outcomes) and informal wage coordination’
(ACIRRT 2002c, p. 10).
Finally, the concept of competitiveness needs elaboration in this context. In
an economy dogged by unemployment, the persistence of wage inequality is facilitated in the absence of employers competing for workers (Watts 2001). Sustained
intra-industry wage inequality under a regime of enterprise bargaining implies
the presence of implicit wage subsidies to the low paying enterprises, thereby
frustrating the efficient allocation of resources. Thus uniform wage changes for
relatively homogeneous groups of workers promote fairness, a level playing field
and also the efficient allocation of resources. There have been no recent studies
of intra-industry wage outcomes to test whether enterprise bargaining, particularly since the Workplace Relations Act has led to more or less disparate wage
outcomes.4
Union bargaining fees
In February 2001, the AIRC approved the levying of a $500 service fee to
non-union members by the Electrical Trades Union in exchange for negotiating
wage increases. Later in 2001, the Federal Court ruled that AWU strike action
at Electrolux in Adelaide in support of the claim for a bargaining fee was illegal.
In mid-2002, however, the full bench of the Federal Court overturned the
earlier decision, ruling that unions and their members could pursue enterprise
agreements that included clauses outside the traditional employment relationship, such as a bargaining fee. The proposed fee was $500, in comparison to the
annual AWU membership fee of $350 (Gough 2002). The government may
appeal to the High Court against the decision.
Combet (2002b) argued that enterprise agreements must also be approved by
employers and the AIRC, which ensures compliance with freedom of association
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laws. Also unions have a legal obligation to negotiate enterprise agreements on
behalf of all employees in the workplace. This prevents discrimination. Corbett
(2001) notes that in principle a non-union member could negotiate either an individual AWA or a common law contract, but the employer may be disinclined to
conduct negotiations with members of its workforce under different processes.
Union members on average earn $99 a week, or 15 per cent, more than
non-members (Combet 2002b). He also points to the broader coverage of
entitlements enjoyed by union members with 89 per cent receiving annual leave,
versus 72 per cent for non-union members, sick leave (90 per cent versus 72
per cent), and long service leave (85 per cent versus 62 per cent). Union coverage
is very uneven across industries and occupations, with their representation
being greatest in those industries where these entitlements are customary. Most
unions saw the fee as consistent with the user pays principle and a tool to
stimulate flagging membership, particularly with the fee often set above annual
union dues.
Pressure to introduce AWAs
One of the criteria (1c) for an Australian University to satisfy to secure funding
in the second round of the Workplace Reform Programme in 2001 was the
demonstration that it has agreements which provide for Australian Workplace
Agreements (AWAs) to be made with staff.
In December 2002, public sector unions resolved to resist plans by the federal
government which were allegedly designed to force new public servants to sign
AWAs. It is claimed that long-term employees could be bypassed for promotion
if they refuse to sign them. Only about 7000 public servants in a total workforce
of about 123 000 have signed AWAs. The rest are covered by 100 certified agreements, mostly negotiated by unions (Phillips 2002).
Workers’ entitlements
Early in 2002, Ansett collapsed for a second time, leading to further job losses
and a threat to the entitlements of those who had lost their jobs. This led again
to questions of corporate accountability with respect to the obligation to disclose
information to employees about the state of the business and the future of
their jobs (Long 2002), in addition to the design of mechanisms to guarantee
workers’ entitlements, after corporate collapses. One particular issue is whether
workers should have priority over other creditors. This would require the
Coalition Government to change Corporations law. This was under consideration at the end of 2002.
In December, the ACTU intensified the debate over entitlements by launching a national test case on redundancy pay. It sought to double the existing safety
net underpinning GEERS to 16 weeks for all employees with more than six years’
service, instead of the eight weeks under awards applying federally and in
most states (Robinson 2002b). Under the claim, workers aged over 45 would be
entitled to up to 20 weeks’ redundancy pay. In addition, the ACTU tried to extend
redundancy pay to casual workers who had worked for the same employer for
more than 12 months. Casual employment represents about 25 per cent of
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total employment, and about 60 per cent of them (1.2 million) have worked
for long periods with the same employer. The ACTU argued that the present
eight-week cap on redundancy pay was inadequate given that the average period
of unemployment after redundancy was 22 weeks. For over 45-year-olds, the
average duration of unemployment was 96 weeks. The ACTU also sought to
require employers to consult their staff before redundancies (Owen-Brown 2002).
In 1998, the Howard Government had stripped consultation provisions from
awards (Combet 2002a).
Long (2002) notes that most European countries require companies over a
certain size to establish works councils, comprised of employee representatives,
to give employees a voice in decisions about the nature of work and the future
of the business. As noted above, the managerial prerogative to act without
consultation and in secrecy persists in Australia.
Buchanan and Briggs of Sydney University found that ‘joint consultative
committees’ in best practice companies failed to reduce downsizing and work
intensification or give employees a voice. Long (2002) concludes that works
councils would be effective if strong sanctions underpinned their operation, such
as executives being stripped of rights to hold directorships or manage businesses,
in the event of failing to consult and inform employees.
The federal government’s current general employee entitlements and redundancy scheme (GEERS) for workers is redundancy payments of up to eight weeks’
pay, plus full payment of unpaid wages, annual leave, long service leave and full
payment of unpaid pay in lieu of notice. This scheme is supported by the
AiG (Skulley 2002). On the other hand, the ACTU proposed that a nationally
legislated entitlement guarantee scheme, funded at low cost through an employer
levy, would guarantee the security of entitlements (Combet 2002a). If the
test case succeeds in lifting the minimum redundancy rate, the ACTU would
request the Commonwealth to raise the cap on payments under GEERS
commensurately.
Two corporate collapses in Melbourne before Christmas led the Australian
Manufacturing Workers Union to launch a national campaign to start in 2003
to secure workers’ entitlements through an industry trust fund, bank guarantees
and a portable long service leave fund (Robinson & Gray 2002).
Maternity leave
The Federal Workplace Relations Act 1996 provides for 52 weeks unpaid maternity
leave for all workers. In May 2001, unions secured unpaid maternity and
parental rights leave for more than two million casual workers (ACIRRT
2002a, p. 12). Access to unpaid parental leave for an increasing proportion of
the workforce has been important in encouraging women’s retention in the
workforce after childbirth, but has done little to reduce the financial disadvantage
faced by women who take time off work when they have a baby (ACIRRT,
2002a, p. 7).
Australia and the United States are now the only OECD countries that do not
offer a universal system of paid maternity leave. Most other countries rely on the
social security system or unemployment insurance to fund periods of leave that
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average around the International Labour Organisation’s convention of 14 weeks
(Watts 2002).
In April 2002, the HREO commissioner presented options for extending paid
maternity leave in a discussion paper (Goward 2002a). Also the Australian
Democrats tabled amendments to the Workplace Relations Act to incorporate paid
maternity leave.
In a subsequent submission to HREOC, the Womens Electoral Lobby (WEL)
outlined a number of compelling benefits to mothers resulting from the introduction of paid maternity leave, including maternal health, economic security,
childbirth as a valid leave entitlement, gender equity with respect to conditions
of employment, such as leave entitlements, and the long term benefits of employment continuity, via ongoing training and career progression. The WEL also
recognised that continuity of employment for women following paid leave would
confer major benefits for employers, including reduced recruitment and training costs; improved staff morale and productivity; and improved organisational
efficiency through the benefits of long service, for example institutional
memory, industry knowledge, networks and contacts. The WEL noted that there
is precedence for the federal government to underwrite employee entitlements,
including the GEERS scheme described above, as well as some governmentfunded industry-specific subsidies (WEL 2002).
In December, Goward (2002b) recommended that, to compensate for lost
earnings, working women should receive 14 weeks paid maternity leave at the
minimum wage of $431 a week, or their average previous weekly earnings from
all jobs, whichever is the lesser amount (Goward 2002b). The payment would
not be means tested. Goward argued that the federal government should fund
the scheme for all women who had been in paid employment for 40 of the
52 weeks before the birth of their child. Employers should be encouraged to
continue existing provisions for paid maternity leave and likewise women,
including public servants, should not be excluded from any government funded
national scheme on the basis of already receiving paid maternity leave in the
workplace.
Recipients of paid maternity leave would not be eligible for welfare payments
which would continue to provide financial support for those mothers who had
not maintained their rate of participation in employment. The offsets associated
with the current welfare schemes would reduce the net cost of the scheme to
$213 million in 2003 and support 85 000 mothers (Buffini 2002). A review of
the operation of the scheme was recommended for three years after its
implementation.
It was estimated that the scheme would replace two-thirds of the income lost
by 73 per cent of all women in paid work for the first 14 weeks of the baby’s life.
On the other hand, women who earned average wages currently received only
$78 a week in welfare benefits at the time of birth, and sacrificed their incomes
from paid work (Buffini 2002).
Unions, women’s groups, small business councils and the nation’s largest
industry representative, the AiG, all backed the plan, but the Australian
Chamber of Commerce and Industry rejected the scheme, despite its public
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funding, after claiming that unions would bring top-up claims unless there
were changes to industrial laws. The top up provision through the bargaining
process was canvassed in Goward’s report (Recommendation 10). The Coalition
Government remained non-committal on whether paid maternity leave would
be introduced in 2003.
Federal funding or the imposition of an employer levy would be required to
implement any universal scheme of paid maternity leave, otherwise employers
would be reluctant to hire women of child bearing age. The argument that
maternity leave arrangements should be negotiated at the workplace level ignores
the substantial disparity in the incidence of such arrangements. ACIRRT (2002a,
p. 12) reports that paid maternity leave provisions are present in only 6.7 per
cent of collective agreements and less than 1 per cent (0.7 per cent) of AWAs
mainly in the private sector. ABS unpublished data showed that the incidence
also varies markedly across industries with Government Administration and
Defence (68.1 per cent) and Communication Services (59.1 per cent) having
the highest incidence, whereas the lowest coverage of was found in Agriculture
(4.5 per cent) and Accommodation, Cafes and Restaurants (13.4 per cent). Access
to paid maternity leave was higher the greater an employee’s length of service
with an employer. In total, 38 per cent of female employees confirmed that
they were entitle