Minimum Wages and Social Inclusion Sue Richardson National Institute of Labour Studies

The path to social inclusion Born healthy, enough smarts, good early years OK school, good peers, finish Year 12, talent for friendship Find job, (post- school quals), have some luck, earn enough National Institute of Labour Studies, Flinders University 2

What are minimum wages? The National Minimum Wage, applicable to all who are not covered by an award Except apprentices and trainees people with disability Youth Currently $606 per week and $15.96 per hour Awards—minimum rates of pay (and conditions) for 122 sets of occupations National Institute of Labour Studies, Flinders University 3

How might they affect social inclusion? Early debates focussed on ‘just’ wage, and ‘sufficient’ wage Fairness and dignity, not just a poverty focus Drew on Rerum Novarum, Pope Leo XIII, 1891 "Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice." [4] [4] "must be enough to support the wage earner in reasonable and frugal comfort.“ First basic wage, HB Higgins in the Harvester judgement, 1907 National Institute of Labour Studies, Flinders University 4

Poverty and minimum wages Much evidence that poverty undermines social inclusion, for adults and their children Do minimum wages reduce poverty? Complex and controversial. Are minimum wage workers at the bottom of the pay distribution? Do they live in low income households? Do higher minimum wages reduce employment of low wage workers? National Institute of Labour Studies, Flinders University 5

Earnings inequality has risen source: Fair Work Commission Statistical Report Annual Wage Review National Institute of Labour Studies, Flinders University 6

Are minimum wages low wages? National minimum wage is about 53% of median earnings for fulltime workers Award wages for skilled occupations go up to $149,516, for captain of wide bodied double deck aircraft $74,386 for Level C (6) academic $95,653 for Level E (professor) $105,136 for senior doctor National Institute of Labour Studies, Flinders University 7

Are minimum wage earners poor? Living standard is determined by household income, not individual income ¾ of award-reliant are in multiple-earner HH 2/3 are women, average age 38 Low wage and/or award workers are not strongly concentrated in the bottom of the HH equivalent income distribution Sole earners (about ¼ of award-reliant) are concentrated at the bottom Primary breadwinners a bit less so Secondary earners (about half of total) are in the middle J. Healy, “What role do safety net wage adjustments play in alleviating household need?, 2011, JIR 53:2, National Institute of Labour Studies, Flinders University 8

Indicators of stress/deprivation All adult employee HH compared with HH with only low paid employees source: Fair Work Commission Statistical Report Annual Wage Review : data from HES Stress indicator Could not pay utility bills on time Went without meals Could not afford to heat home Not afford a night out a fortnight Unable to raise $2000 in a week Usually spend more than income Could not afford week’s holiday AllLow paid (below 2/3 median) National Institute of Labour Studies, Flinders University 9

Conclude Low paid and award-reliant are not the same Although award-reliant are low paid for their skill/work But characteristics such as sole, main or secondary breadwinner, financial stress, gender are very similar As individuals, award reliant have relatively low earnings Their households are fairly evenly distributed across the HH income distribution, except at top end More concentrated at the bottom of HH that are reliant on wage income (rather than all HH, which include non-wage) Experience somewhat higher financial stress/deprivation especially if HH has no higher paid workers Poor? Not in a concentrated way, unless sole earner National Institute of Labour Studies, Flinders University 10

Do minimum wages reduce jobs? Much studied in US and UK, though harder in Australia Australia different because 100 year history of setting minimum wages Award structure Quite uniform across the country Minimum wages are quite high compared with other countries UK introduced national minimum in 1999 Currently 6 pounds 19 for adults (about $8.92) Careful research has found little job loss caused by the introduction and increases in their minimum wage US extensive research Mixed findings, but probably small job loss in response to increase National Institute of Labour Studies, Flinders University 11

Why is there not obvious job loss? Wage rises are a normal part of the economic environment in which firms operate (award and above award) Firms have many ways of adapting Pass on the costs in higher prices Increase productivity of workforce Higher wages reduce costly turnover and improve worker effort/quality Wages affect labour supply as well as demand Very low wages provide a low incentive to work, especially for second income earners (married women have a more sensitive response to wage levels than do others) The social welfare benefits provide an alternative to very low wage work National Institute of Labour Studies, Flinders University 12

Do minimum wages affect social inclusion? Aid in the efforts to counter market forces tending to greater inequality in earnings Promotes a sense of justice and dignity at work A small job loss (if there is one) reduces low incomes by less than the wage gain to the many FWA concluded in their 2012 Decision “[23] There was no dispute that employment is an important component of social inclusion. We also consider that the pay and conditions attaching to work are relevant because they impact upon an employee’s capacity to engage in community life and the extent of their social participation. [24] Incentives to work remain a relevant issue for consideration in assessing social inclusion. The effect of minimum wage levels on the incentive to work must be balanced against any impact on the demand for labour. “ National Institute of Labour Studies, Flinders University 13