the evolution and future of the minimum wage in australia
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The evolution and future of the minimum wage in Australia
Rob Bray Research School of Economics ANU
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Minimum wage – key numbers
• Currently $606.40 per week – Lower for some youth – Many obtain casual loading
• Second highest in OECD • Paid to some 4-10% of employees
– More common for part-time employees – Employees of small business
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Theory
• Perfect market – price up, demand down • Monopsony – distorted market • Efficiency wage – pay to get people to work • Bargaining – profit share with employer • Bargaining – relative wages – for different
workers • Education and training – up or down?
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Harvester decision
“the normal needs of the average employee regarded as a human being living in a civilised community” “himself and his family” - “necessary average weekly expenditure for a labourer’s home of about five persons”. “to insure the workman, food, shelter, clothing, frugal comfort, provision for evil days, &c”.
Higgins 1907 4
• Determining a fair and reasonable wage
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The minimum wage since 1907
5
0
100
200
300
400
500
600
700
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
$201
2 pw
Harvester/Basic wage (1907-22) Basic wage (1923-64)Minimum Wage (1964-78) Divergence - NWC only (1978-95)Divergence - Metal workers (1978-95) FMW (1977-current)
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Effective value of the minimum wage
6
0
50
100
150
200
250
300
350
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
Inde
x nu
mbe
r 19
07=1
00
FMW Adj Hours & Super
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Relative to other earnings
0
10
20
30
40
50
60
70
80
90
100
0
200
400
600
800
1000
1200
1400
1914 1929 1950 1970 1990 2010
Min
imum
as
% o
f ave
rage
Wag
es $
2010
Min Wage Av earnings FMW as % av earnings (RHS)
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The minimum wage today – type of employment (EEH 2010)
Full-time non-casual
39.4
Full-time casual
6.2
Part-time casual 34.3
Part-time non-casual
20.1
8
Casual 40.4%
Part-time 54.6%
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Occupations of FMW employees (EEH 2010) Sales 13%
Factory 12%
Food prep 9%
Base clerical
8% Hospitality 7%
Cleaners 5%
Carers/ Aides 5%
Other labourer
4%
Farm 3%
Other 34%
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Who gets the minimum wage (HILDA 2011)
• Adults – Couples with children 25.8% – Couples without children 26.0% – Non-student adult child 19.5 % – Adult student child 4.0% – Lone parent 8.2% – Other 16.5%
• Couples – 10.4 % have a minimum wage earner – Mainly supplementary (27.8% only minimum wage)
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Household distribution of adult FMW income (HILDA 2011)
0
5
10
15
20
25
30
Bottom 2 3 4 Top
Per
Cen
t
Income quintiles of households with some income from wages and salaries
Share oftotal FMWearnings(%)
FMWshare ofHHearnings(%)
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Minimum wage, taxes and transfers
8090
100110120130140150160170180
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Inde
x N
umbe
r 198
6=10
0
1 Jan
Minimum Wage Single Person Couple + children12
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Single breadwinner couple family (Kids 3 & 8 years)
13
-100
100
300
500
700
900
1100
-100
100
300
500
700
900
1100
1986
1989
1992
1995
1998
2001
2004
2007
2010
$Dec
201
1 p
w
Minimum Wage Income support RA FTB(A)FTB(B) Tax Disposable Income
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Taking stock • Minimum wage fallen relative to other
earnings • Paid to 4-10%, over half part-time • While more concentrated in low income
households only part contribution to income • While real rate effectively flat
– Single - mainly tax +11% – Couple with children – mainly transfers +70%
• ‘Harvester family’ largely disappeared
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The low lying fruit has been picked
• Transition from family wage to single wage is now complete
• Essentially has involved 25 years of minimal pressure from minimum wage
• … and has occurred without too much impact on income inequality
• Scope for this is coming to an end
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Options
• Get rid of the minimum wage • Allow the minimum wage to grow in step
with other earnings • Continue to hold the minimum wage flat in
real terms • Continue to hold the minimum wage flat in
real terms – but intervene to increase income of low income households
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Get rid of the minimum wage
• Risk of downward wages spiral
• Employers will rent seek on support for
families
• Has a role in underpinning other wages
• Has a role with regard to transfers
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Allow the minimum wage to increase
• Will require productivity of minimum wage workers to grow at same rate as overall – If not will have employment consequences for
least skilled
• Is there a training path? – Are we confident about the ability to assist the
most disadvantaged?
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Hold the minimum wage flat
• Minimises adverse employment effect • Will increase earnings inequality – and
have significant effects for some households
• Will put pressure on income support payment rates
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Hold flat but complement
• Introduce an Earned Income Tax Credit • Can target it at those on low earnings and
in low income households • But signals a real change
– Full time work may not be sufficient to earn enough – but is recognised as a contribution/ obligation
– We have done this for families
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What now?
• Important but not urgent? • Path choice is essential
– Current annual mechanisms limit options – and indeed risks poor outcomes
– Other paths require the development of new institutions
• Challenge is how we decide – … and recognise the need to do something
before we run into problems 21
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The End
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