14 May, 2019
The Federal election has now been called for Saturday, 18 May 2019. Over the course of the election campaign, we will consider the possible impact of proposed policy changes on Australian businesses to keep you up to date with developments as the campaign progresses.
An election for the Living Wage
The ALP has proposed that the Fair Work Commission be empowered to "deliver a living wage for Australia's low-paid workers".
What does this mean in practice, and how might it affect your workplace?
Implications of the proposed Living Wage
The proposed Living Wage policy represents the ALP's overarching response to the well-documented slowdown in wages growth in Australia. Economic commentators, including the Reserve Bank of Australia, have suggested for some time that stagnant wage growth has burdened the economy because the effects of consumer spending, inflation, tax revenue and Government spending have also become stagnant as a result.
Opinions differ about the ALP's proposal to fix wage stagnation through legislative intervention. One view is that it is difficult to determine whether implementing a Living Wage will have an effect on wages growth over a longer period of time. It acts as an immediate 'fix' to low wages, but may create issues for workers in higher classifications whose wages may plateau or increase only marginally as a result.
Providing wage increases that do not flow to the higher classifications in award structures means that only a relatively small proportion of award-covered workers benefit from the increase. This is likely to have a minimal impact on enterprise bargaining, and overall economic factors are still likely to be the biggest factor in determining wage growth nationally.
It may be that in order to achieve the ALP's goals of addressing low wages and increasing living standards of those living on current minimum wages, there will need to be a broader reform agenda (including reforms to welfare and taxation). Until further detail is revealed, the true effect on businesses, the workforce and the economy will remain uncertain. What is certain, however, is that the current policy proposal represents a fundamental shift in the approach taken by the ALP, towards a more interventionist approach to wages policy.
The ALP's proposal for a Living Wage
The ALP announced in March 2019 that,
A living wage should make sure people earn enough to make ends meet, and be informed by what it costs to live in Australia today – to pay for housing, for food, for utilities, to pay for a basic phone and data plan.
The concept of a living wage is different from the minimum wage. The minimum wage sets the safety net for wages; seeking a living wage is seeking to raise the minimum wage to provide for a certain standard of living.
Proposed amendments to the FW Act
It appears that the ALP would implement a living wage by expanding the powers of the Fair Work Commission in relation to wage setting. We anticipate that the process would involve the Commission:
- deciding what monetary figure the Living Wage should reflect; and
- establishing a timetable for lifting the current minimum wage to the level of the Living Wage (presumably in increments, rather than in a single increase from the existing minimum wage).
It is likely a living wage would increase minimum wages at the lower classifications levels in most modern awards. It would not necessarily result in increases at higher classifications.
Calculating the Living Wage
The ALP has not outlined the criteria the Commission would be required to consider in calculating the Living Wage. Options include:
- the approach taken by the United Kingdom's Low Pay Commission. In the UK, the Living Wage is calculated as equivalent to approximately 60% of the median wage. The ACTU has indicated that an Australian Living Wage, on this basis, would currently be $20.84 per hour, up from the current minimum wage of $18.93; and
- considering the average costs of expenses such as housing, food, utilities, school education and contingency money for emergencies, as they apply to low-paid workers.
Unintended consequences of implementing a Living Wage
In practice, a living wage will act as a minimum wage threshold – but what happens when award wages that fall below the living wage are raised to meet it?
There is a risk of disturbing long-established work value relativities in modern awards by compressing minimum wage rates in the lower half of the classification structure. This could devalue the work performed at mid-range award classifications, and disincentivise workers from seeking promotions to a higher classification.
Alternatively, if existing award wage relativities were maintained, it could result in significant wages increases across the award classification structure. This would have broader economic consequences (including unemployment and youth unemployment levels) and could be expected to flow through to agreement-covered workers via the enterprise bargaining system.
Given the potential for unintended consequences, it may be preferable for living wage considerations to be addressed through the tax and transfer system, rather than the industrial relations system.
For further information, please contact:
Jon Lovell, Partner, Ashurst
jon.lovell@ashurst.com
