Fair Ground

I went along last Thursday to hear Ian Harper, new head of the Fair Pay Commission, give his first speech on the topic of minimum wages, and what his new Commission will do. Full text over the fold.

There isn’t much there for the tealeaf-readers to go off. Professor Harper emphasised the importance of taking into account the effect the minimum wage has on employment and earnings. If you’re the ACTU, you’ll argue these effects are zero and large respectively. If you’re ACCI, you’ll claim the reverse.

The speech got some coverage last Friday, the most interesting quote being this one from the Herald Sun:

Mr Combet said the ACTU welcomed Professor Harper’s decision to oversee new research into the effects of movements in award wages.

"However, we would be concerned if the new studies were conducted by researchers with a less than impartial record."

There’s certainly something to be said for Mr Combet’s view. It’s always harder to produce a result that conflicts with your earlier research than one which confirms it. The trouble is, there aren’t many Australian labour economists who have never expressed a view on the minimum wage. And while it’s fine to get a non-labour economist to head the Commission, I’m not sure you’d want the actual research done by non-labour economists.

“Ensuring Fair Pay: The First Steps”

Professor Ian Harper

The Honourable Kevin Andrews, Minister for Employment and Workplace Relations, Mr Stephen Smith, Shadow Minister for Industry, Infrastructure and Industrial Relations, Dr Peter Shergold, Secretary of the Department of Prime Minister and Cabinet, Distinguished Guests, Ladies and Gentlemen:

Thank you, John, for your kind introduction.  I’m sure that’s just about as much detail about me as anyone wants to hear this evening.  Those of you who have followed the press since my appointment as Chair of the Fair Pay Commission now probably know more than you ever cared to know about me and my private life.  “Too much information!” as the young people say these days.

Being designated Chairman of a Commission before it actually exists is an interesting experience.  With no legislation to focus debate, people have little more to go on than the personality and experience of the Chairman-designate.  And so I have been the subject of a wide variety of comment, both favourable and unfavourable, as people attempt to read the Commission’s likely actions through me and what they take to be my beliefs, prejudices and predispositions.

Now that the legislation exists and has passed through the Parliament, we can widen our focus beyond the personalities involved and onto the Commission itself—its remit, its modes of operation and the markers of its success.  This is where I will direct my remarks this evening.

While I will be as clear as I can, where I can, it would be well for us all to remember that the Commission is yet to convene its first meeting—indeed, my fellow Commissioners have yet to be appointed.  So, of necessity, there will be areas where I can only give my own perspective—admittedly as Chairman—but giving adequate space for my Commissioners, the Director of the Commission and the staff to help shape and form what will be a team effort.

I

The Australian Fair Pay Commission is one part of the Government’s new Workplace Relations System.  The Commission’s role, simply stated, is to set and adjust minimum wages.  It must do so with the aim of promoting the economic prosperity of the people of Australia.

The Fair Pay Commission has been granted full independence from government.  The Commission is not advisory to government but authoritative on matters within its purview.  Its determinations are binding on all parties.

Contrary to some early claims, the Fair Pay Commission does not displace the Australian Industrial Relations Commission.  Rather, it assumes the wage-setting powers of the AIRC as they relate to the setting of minimum wages for employees of Constitutional corporations and employees in Victoria and the Territories.

The AIRC retains its powers in relation to dispute resolution, simplifying and rationalising awards and regulating industrial action.  The AIRC is required to take into account the determinations of the Fair Pay Commission in setting wages in Federal transitional awards.

In the weeks since my appointment as Chairman of the Fair Pay Commission on 15 December last year, I have taken the opportunity to meet with various key players in workplace relations for preliminary conversations and to open the channels of communication.

I was pleased to meet recently with Justice Geoff Giudice, President of the AIRC.  We discussed ways in which the two Commissions might interact and how the AFPC’s approach to setting minimum wages might differ from that adopted by the AIRC under its quite different legislation.

I have also met in the last fortnight with Sharan Burrow and Greg Combet of the ACTU and Peter Hendy and his colleagues at ACCI.  These meetings have given me the opportunity to hear first-hand some early insights from key players as well as their hopes for, and in some cases concerns about, the Commission.

In fulfilling its responsibilities to set and adjust minimum wages and casual loadings, the Commission must consider:

• the capacity for the unemployed and the low-paid to obtain and remain in employment;

• employment and competitiveness across the economy;

• providing a safety net for the low-paid; and

• providing minimum wages for junior employees, employees to whom training arrangements apply and employees with disabilities that ensure those employees are competitive in the labour market.

In addition, the Fair Pay Commission cannot lower minimum wages below the levels set by the AIRC in its 2005 Safety Net Review.  These levels are the starting point for the Fair Pay Commission’s deliberations.

II

A minimum wage is simultaneously someone’s income and someone else’s labour cost.  Setting and adjusting minimum wages will affect the incomes of low-paid workers, the labour costs of their employers as well as the labour costs of prospective employers of unemployed workers.

A key focus of the Fair Pay Commission’s work will be to ensure that minimum wages in Australia, as far as is practicable and over time, do not impede unemployed people from gaining employment and do not induce employers to shed low-paid workers.  At the same time, the Commission must look to the role minimum wages play in providing a safety net for low-paid workers.

The careful balancing of these two aspects of minimum wages requires detailed knowledge of the circumstances and incentives facing people in low-paying jobs, their employers and those currently without paid work of any sort.  As to circumstances, these may include whether an individual is single or in a relationship, has dependants or not, whether they are skilled or not, speak English as a first language or have some form of disability.  As to incentives, these include primarily pay and conditions but the Commission must also consider interactions between minimum wages and the tax and social security systems. 

It will be an essential task for the Commission to familiarise itself with these circumstances and incentives through research, analysis, consultation and communication.

In broad terms, the Government’s workplace relations reforms widen the scope for market forces to influence labour market outcomes in Australia.  But market forces will not have free rein in setting wages.  The Fair Pay Commission will set and adjust minimum wages, establishing a floor below which wages cannot lawfully be set, at least within the jurisdiction of the Commission.

Australia’s lowest paid workers are therefore protected from wages falling below the legal minimum.  On the other hand, in setting the legal minimum, the Fair Pay Commission must consider the level of minimum wages as a potential obstacle to unemployed persons finding paid work.  In this sense, the Commission must set minimum wages over time so as to protect the unemployed (and juniors, trainees and disabled workers) from being priced out of the labour market.

A fundamental break with past practice in the approach to setting minimum wages is that the Fair Pay Commission is not a judicial body.  The Workchoices legislation requires that the AFPC base its determinations on wide consultation with interested parties and on research, both commissioned and in-house.  While formal hearings are one means of gathering relevant information, they are not mandated by the Act and would not, in any case, take the form of judicial proceedings.

III

As Chairman, my aim is to establish a reputation for the Fair Pay Commission which lives up to its name—I want its determinations to be widely perceived as fair.  To that end, I will ensure that the Commission is accessible and open to the input of all interested parties.  I want the values of fairness, openness, honesty and integrity to characterise all aspects of the Commission’s operations and conduct.

Apart from myself, there are four other Commissioners on the AFPC.  Each of us brings to the table experience in one or more of the following areas: business; community organisations; workplace relations; and economics.  The Commissioners are not appointed to represent particular constituencies.  It will be the Commission’s task to ensure that a fully representative range of views is canvassed during our consultations and through submissions and the results of commissioned research.

The Commission will be supported by a Secretariat headed by the Director.  I anticipate the Secretariat will be made up of around 40 staff initially, with key operating areas covering policy and research, workplace relations law and practice, consultation and communication.  I expect that the staff of the Secretariat will bring a mix of skills and experience in economic policymaking, workplace relations issues and public consultation.

I understand from Minister Andrews’ office that he has accepted a recommendation to appoint a person to the position of Director and that an announcement is imminent.

The Commission’s offices will be located in Melbourne.  We will eventually occupy the sixth floor of 595 Collins Street, the former Transport House.  In choosing a location for the Commission, I was keen to emphasise accessibility.  I believe this is important practically but also symbolically for a Commission committed to openness and consultation.

At 595 Collins Street, we will be accessible, being in close proximity to the new Southern Cross railway station and tram and bus routes passing along Spencer and Collins Streets.  The building is set up for easy public access, including for disabled people, housing as it does the Victorian Registry of Births, Deaths and Marriages and parts of the Department of Human Services.

The Commission’s offices will be fitted out with facilities for larger-scale meetings and consultations.  However, my intention is that many of our consultations will take place off-site, as members of the Commission travel to where low-paid workers and their employers work and live.

IV

The AFPC is required to deliver its first determination by Spring 2006.  Between now and then, we need to develop an agreed approach to public and stakeholder consultation and decide on priorities for commissioned research.  The task itself involves setting minimum wages across all Federal award classifications, setting casual loadings where these are specified in awards and setting minimum rates of pay for junior employees, employees to whom training arrangements apply and employees with disabilities.

There are currently more than 4,000 Federal awards, each with multiple classifications.  Technically speaking, there are at present around 40,000 minimum wages.  The Commonwealth has instigated an Award Review Taskforce under the chairmanship of Matthew O’Callaghan whose task is to recommend appropriate rationalisation of award wage and classification structures and the rationalisation of awards.  The outcome of this work will provide the framework for the Fair Pay Commission’s minimum wage determinations.

Notwithstanding the large number of awards and award wage classification levels, in practice the 14 wage classification levels of the Metal Industries Award have formed the basis of minimum wage adjustments under the AIRC’s Safety Net wage reviews.  The lowest of these classification levels, C14, is the Federal minimum wage and is currently set at $12.75 per hour.  Adjustments to minimum wages in the Metal Industries Award have flowed through to other awards on application to the AIRC.

V

When Minister Andrews first broached the possibility of my serving as inaugural Chair of the Fair Pay Commission, he pointed to the operating procedures of the British Low-Pay Commission as an example of what the Government had in mind.  I have since had the opportunity to read the various reports of the Low-Pay Commission and, more importantly, to speak at length with its inaugural Chairman, Sir George Bain, and with a current member of the LPC, Professor Willy Brown of Cambridge University.

They both stressed the immense value of the stakeholder and public consultation process that the British LPC has instigated since its inception in 1998.  The LPC holds very few formal hearings but opts instead for public meetings ranging from “town hall” gatherings to one-on-one interviews with individual employees or employers.  Information gathered from these meetings supplements written submissions to the Commission.  The meetings are held in a wide range of locations around Britain as the LPC seeks to meet low-paid workers and their employers where they work and live.

The Fair Pay Commission will follow this example as far as practicable.  We will seek to understand the circumstances of low-paid Australian workers as well as those who employ them—or choose not to employ them, as the case may be.  The details of our processes are yet to be determined but our consultations will be a distinguishing feature of the Fair Pay Commission as they have been of the Low-Pay Commission in the UK.

I am committed to developing with my fellow Commissioners and senior executives a ‘process’ which ensures we identify, capture and gather the best possible information upon which to make our decisions.  To that end, the consultation process must offer a wide variety of mechanisms for individuals and groups to provide views and input—from meetings and forums through written, electronic and even verbal submissions. 

I envisage the use of discussion papers, reports and presentations to support the consultation process on the basis that good process is a mandatory component of good outcomes.

Undertaking and commissioning relevant research will also be a priority for the Fair Pay Commission as it has been for the Low-Pay Commission.  The LPC discovered early on that the data required to understand the relationship between the level of minimum wages and the levels of employment and unemployment of low-paid workers were non-existent or not up to the task.   

An early priority for the Fair Pay Commission will be a review of the Australian data and research databases with a view to deciding where additional data collection and research will be required.

VI

The establishment of the Fair Pay Commission and my appointment as Chairman have attracted wide public interest.  People have strong views about what the minimum wage ought to be and how it interacts with things like unemployment and the living standards of the low paid.  Unlike the British, who had no minimum wage prior to the establishment of their Low-Pay Commission, Australians have lived with minimum wages for more than 100 years.  And our labour market institutions, which are unusual if not unique, attract defenders and detractors in almost equal numbers.

I am only too well aware that my chief task—shared with my fellow Commissioners—over the next few years is to build public confidence in a brand new labour market institution and a different way of addressing our shared national concern with the plight of some of Australia’s most vulnerable citizens—the unemployed, low-paid workers, and workers with disabilities.

I ask my fellow Australians to give the Fair Pay Commission a fair go.  In return, I commit myself to fulfilling the mission of the AFPC to the best of my ability.  I will know that we are on the right track if the Commission earns a reputation for making fair decisions—not necessarily popular decisions—but decisions which are fair to the work chances of unemployed Australians as well as fair to low-paid Australians whose jobs pay no more than the minimum wage.

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