It's all in the timing

Thanks to psychologists (and a few economists), we know that the way issues are framed can have a big difference on how they’re perceived. In a signal illustration of the importance of context, the Fair Pay Commission’s decision to raise the minimum wage by 2% has been cast as stingy, in contrast to its 5.6% rise in October 2006, which was generally perceived as generous.

But in July 2007, the AFPC had raised the minimum wage 9 months ago; while in October 2006, the minimum wage hadn’t been raised for 17 months. Shouldn’t we take that into account?  If we put them both on an annualised basis, the October 2006 decision was a 3.9% rise, while the July 2006 decision was a 2.6% rise. So the latest decision is a smidgin lower; but the difference is smaller than it looks if you were to merely read the media reports.

Clearly if it wants to be portrayed in the Australian media as a champion of the poor, the Australian Fair Pay Commission should only raise the minimum wage every two years – then it can give out increases that are twice as large. By contrast, politicians could save themselves a lot of grief over 6.7% pay rises if only they asked the Remuneration Tribunal to raise their salaries every six months.

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17 Responses to It's all in the timing

  1. Mark Davis says:

    Andrew,

    A better yardstick of the impact of Australian minimum wage rises on the living standards of the ow paid is to compare the wage rises to increases in the consumer price index over the same period.

    Here is that comparison for the last three increases to the federal minimum wage

    June 2005: Federal minimum wage increased 3.6 per cent. Previous increase was in June 2004. Over the period since the previous increase the CPI rose 2.5 per cent. Real increase: 1.1 per cent

    December 2006: FMW increased 5.7 per cent. CPI over the 18 month period since previous increase was 4.8. Real increase: 0.9 per cent.

    October 2007: FMW to increase 2 per cent. Forecast CPI over the 10 months since the last increase is 1.9 per cent (RBA’s 2.25 per cent forecast for year to December 2007 apportioned to 10 months to October). Real increase: -0.1 per cent.

    Mark Davis

  2. Mark Davis says:

    Please note the final figure in my previous response should be “Real increase: 0.1 per cent”

  3. Clinton McMurray says:

    As you say Andrew, framing matters. If I frame it like this:

    On an annualised basis, the October 2006 decision was 1.5 times greater a rise than was the July 2006 decision,

    then it no longer seems like a smidgin lower.

  4. Matt C says:

    An alternative way of framing it would be:

    Low-wage employees in the federal industrial relations system will be $9.28 per week (or 482.56 per year) worse off than their counterparts in the NSW system. They will also be $6.28 per week (326.56 per year) worse off than their counterparts in the WA system. These differences are even greater when you account for the fact that low-wage employees in the NSW and WA systems will enjoy their wage increases several months before employees in the federal system.

  5. Andrew Leigh says:

    Mark, thanks for doing the maths on the inflation rate. That’s definitely the right way to be thinking about it. This decision is lower than the last one, but the difference is <1%.

  6. As a “CONSTITUTIONALIST” and having published on 27-5-2007 a book in the INSPECTOR-RIKATI® series about the deceptive 14-11-2006 judgment of the High Court of Australia I maintain that “WorkChoices” is unconstitutional.
    HANSARD 27-1-1898 Constitution Convention Debates
    Mr. SYMON.-
    The relations between the parties are determined by the contract in the place where it occurs.
    And
    Sir EDWARD BRADDON (Tasmania).-
    We have heard to-day something about the fixing of a rate of wage by the federal authority. That would be an absolute impossibility in the different states.
    And
    Mr. BARTON: If they arise in a particular State they must be determined by the laws of the place where the contract was made.
    And
    Mr. BARTON.-We do not propose to hand over contracts and civil rights to the Federation, and they are intimately allied to this question.
    And
    Sir JOHN DOWNER.-
    The people of the various states make their own contracts amongst themselves, and if in course of their contractual relations disagreements arise, and the state chooses to legislate in respect of the subject-matter of them, it can do so.
    HANSARD 31-1-1898 Constitution Convention Debates
    Mr. SOLOMON.-
    We shall not only look to the Federal Judiciary for the protection of our interests, but also for the just interpretation of the Constitution:
    HANSARD 8-2-1898 Constitution Convention Debates
    Mr. HIGGINS.-I did not say that it took place under this clause, and the honorable member is quite right in saying that it took place under the next clause; but I am trying to point out that laws would be valid if they had one motive, while they would be invalid if they had another motive.

    Just to mention a few.
    The AFPC therefore lacks any constitutional, powers to set (minimum) wages for State based contracts and more over neither can defer increases for farm workers, as where it operates under the authority of the Commonwealth of Australia it can only provide for wage increases (for so far applicable) for the whole of the Commonwealth of Australia. As the Framers of the Constitution made clear, the Commonwealth of Australia could not provide laws to apply to some but not others but must apply them to all people, if they have jurisdiction, to all people.
    Hence, if the AFPC pursues to provide for a minimum wages it must do so for all equally, not some now and others later or not at all!
    To keep the post short other arguments may be noted on my website http://www.schorel-hlavka.com and my blog; http://au.360.yahoo.com/profile-ijpxwMQ4dbXm0BMADq1lv8AYHknTV_QH

  7. As for the politicians payrise. It should be understood that constitutionally the parliament can determine the pay for politicians (so the Remuneration Tribunal for it) but the Framers of the Constitution made clear that all Parliamentarians should be paid the same.
    Section 48 of the Constitution provides for “ALLOWANCE”, WHICH IS FOR A COMPENSATION FOR A Member of parliament for earnings loss of their ordinary profession. Hence, they are not employed by the Commonwealth of Australia, and if they have no daily job they are “TECHNICALLY” “UNEMPLOYED” and some may argue then they might be “DOLE BLUDGES” , who are abusing/misusing Consolidated Revenue such as for free postage, electoral allowance for political campaigns, etc. etc. Hence the about $30,000.00 leaving payment if they are not re-elected is unconstitutionally also. And there is a lot more to this as my books in the INSPECTOR-RIKATI® series have exposed.
    As for parliamentarians who are Minister of the Crown, their pay must come from the Queen (being the British Crown Queen Elizabeth II, not some LEGAL FICTIONAL Queen of Australia, as the Commonwealth of Australia is a “political union” as like the “European Union” and not a country/dominion at all). Likewise so for the Governor-General (Section 3 & 66 of the Constitution).
    Meaning that upon leaving neither a Minister nor a Governor-General can receive further payments from Consolidated Revenue, for having an Office, staff, or other freebees, such as free travelling by plane at taxpayers expenses!
    Neither can the Remuneration Tribunal interfere as to how much HM the Queen pays a Minister.
    Hence, Ministers are, so to say, putting their hands in the till and robbing consolidated Revenue unconstitutionally, as much as a checkout girl were to take money out of the till rather then to await the employer to pay her wages.
    Ministers of the Crown are not employed by the Commonwealth of Australia, hence any superannuation entitlements is between HM the Queen and the Minister, nothing to do with Australians. Likewise so for the Governor-General.
    See also my website http://www.schorel-hlavka.com and my blog http://au.360.yahoo.com/profile-ijpxwMQ4dbXm0BMADq1lv8AYHknTV_QH

  8. Andrew Leigh says:

    You may maintain that Workchoices is unconstitutional, but the High Court has found otherwise.

  9. Clinton McMurray says:

    Andrew, my comment above, (on an annualised basis, the October 2006 decision was 1.5 times greater a rise than was the July 2006 decision, then it no longer seems like a smidgin lower) was not about what is or is not the correct way to think about it. As you rightly point out the difference is less than 1% in real terms.

    My point was about framing. I used figures from your post (3.9% and 2.6% annualised). 3.9 is 1.5 times greater than 2.6. My point is that timing would not solve the problem of framing. There is almost always a way to frame data in order to illicit a desired psychological response. I suspect that your readership appreciates this and therefore my point is redundant here. It is the wider public that is mislead by framing of economic data. Perhaps more/better coverage of economics and statistics at high school would help?

  10. Andrew,

    No doubt you are correct in that the High Court of Australia on 14-11-2006 declared otherwise, but long before the Court made that decision I already worked on it.

    The following applies as much to Federal laws of the Commonwealth of Australia as it does to federal laws in the USA; http://familyguardian.tax-tactics.com/Subjects/LawAndGovt/ChallJurisdiction/AuthoritiesArticle/AuthOnJurisdiction.htm
    37 Am Jur 2d at section 8 states, in part: “Fraud vitiates every transaction and all contracts. Indeed, the principle is often stated, in broad and sweeping language, that fraud destroys the validity of everything into which it enters, and that it vitiates the most solemn contracts, documents, and even judgments.”

    The Federal Government lawyers were telling me for 5-years that they would defeat me because the High Court of Australia had made their rulings time and again, such as in the Albert Lange and Abbotto (Abbott) case that voting is compulsory. Yet, despite that I succeeded in Court defeating them.

    On 26 July 2005 I forwarded an email to John Howard (and others) setting out why the Commonwealth of Australia had no constitutional powers to legislate as to what is known as WorkChoices. This material the federal Government lawyers concealed from the High Court of Australia, as such constituting FRAUD, as the material was relevant to the matter before the Court. Hence, the High court judgment was obtained by FRAUD.

    Byrne v Byrne (1965) 7 FLR 342 at 343
    “Fraud: Usually takes the form of a statement of what is false or the suppression of what is true.”

    Taylor v. Taylor (1979) Fam LR 5, 289289 at 290 298 and 300 HIGH COURT OF AUSTRALIA.
    (1) to the separate grounds of fraud and suppression of evidence which would comprehend cases of willful false evidence. At common law, a judgement will be set aside if it has been obtained by fraud.

    Foster (1950) S.R. (N.S.W.) 149, at p151 (Lord Denning, speaking on the role of an advocate)
    “As an advocate he is a minister of Justice equally with a judge, A Barrister cannot pick or choose his clients…He must accept the brief and do all he honourably can on behalf of his client. I say ‘All he honourably can’ because his duty is not only to his client. He has a duty to the court which is paramount. It is a mistake to suppose that he is a mouthpiece of his client to say what he wants: or his tool to do what he directs. He is none of those things. He owes his allegiance to a higher cause. It is the cause of truth and Justice. He must not consciously misstate the facts. He must not knowingly conceal the truth. He must not unjustly make a charge of fraud, that is, without evidence to support it. He must produce all relevant authorities, even those that are against him. He must see that his client discloses, if ordered, all relevant documents, even those that are fatal to his case. He must disregard the specific instructions of his client, if they conflict with his duty to the court.”

    Over the years when assisting parties in litigation as an Attorney (not lawyer) I would at times use this to defeat opponent lawyers, knowing that they tend to hide details/information not expecting me to use this!

    I invite you to check out the constitutional issues I have set out in my blog and then challenge them not by mere statements but by relevant evidence. You may just discover that I do not make mere wild statements but based it al, on extensive research and relevant material!
    You ought to check the High Court of Australia 14-11-2006 judgment and check my quotations in my previous post against it. You may just discover the judges omitted to consider these and numerous other relevant statements. As such, it lacked proper “consideration” of all relevant matters!
    It might take time but I have no doubt that soon or later the 14-11-2006 decision will be over turned, as happened with the Cross Vesting Act, which I also challenged since 1994 as to its validity (See HCA 27 of 1999 Wakim when the Court finally held it being unconstitutional.)

    Still, thanks of your comment, regardless if I may disagree with it.

  11. TB says:

    I’d argue that you’re better off using a measure of underlying inflation to calculate that real increase in the minimum wage in recent years. Using headline seriously distorts Mark’s calculation for the Dec 06 increase, because it includes the banana effect, which we know wasn’t a real increase in inflation since people didn’t actually buy that many, but the ABS kept the weighting the same.

    More generally, my understanding is that there’s not one minimum wage, but several, depending on the award you’re covered by. And while the percentage increases quoted above are all correct for those on the FMW, many others are actually getting smaller percentage increases because their minimum wage is higher than the FMW, but they get the same dollar increase. Overall, then, the percentage increase in wages for all minimum wage workers is smaller than most people think.

  12. LJ says:

    Interesting posts but if we are interested in making welfare comparisons across years it is important to use the real after tax wage (ideally we would also include changes to benefits – cash and non-cash – and tax expendituers). Tax rates and benefits are not constant across years and the tax cuts announced in the last budget will have their greatest proportional effect on the lower part of the income distribution. When the numbers are adjusted for the tax changes the difference between this decision and the last decision is even smaller….

  13. Sacha says:

    A question from a non-lawyer: if it is up to the High Court to determine whether a law is unconstitutional, and it finds that the law is not unconstitutional, then that is that until it finds otherwise, no?

  14. Andrew Leigh says:

    Sacha, the word ‘unconstitutional’ may not be the best one. In your example, the law is clearly valid, though some may argue that the court’s decision was mistaken.

    When I was a High Court associate, litigants in person would often contend that the court did not have jurisdiction, eg. because the Constitution was invalid. Frequently these cases would try to join John Howard as a respondent, and/or invoke the Magna Carta.

  15. Matt C says:

    I don’t see why the comparison with the State minima is in any way invalid or irrelevant.

    Around 39% of WA employees remain in the State system; the figure would be similar in NSW, QLD, SA and Tasmania.

  16. Leopold says:

    Won’t we have to wait until October to know what the real level of this increase is?

    Total inflation in the December and March quarters was around 0 from my recollection. So as long as the CPI rises only 1.1% or less between April and October, this decision would actually be MORE generous in real terms…

  17. Mark Davis says:

    Leopold,

    June quarter CPI rose 1.2 per cent following the combined 0 movement for the December and March quarters.

    So the real minimum wage rise arithmetic so far is:

    * Minimum wage rise due this October: 2 per cent at most (less for those on rates higher than the Federal Minimum Wage).

    * CPI from Decenber to June: 1.2 per cent.

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