Minimum Wages and
Social Inclusion
Sue Richardson
National Institute of Labour Studies
Find job, (postschool quals), have
some luck, earn
enough
OK school, good
peers, finish
Year 12, talent
for friendship
Born healthy, enough
smarts, good early
years
National Institute of Labour
Studies, Flinders University
The path to social inclusion
2
What are minimum wages?
• The National Minimum Wage, applicable to all who are not
covered by an award
• 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
• Except
3
How might they affect social
inclusion?
• Early debates focussed on ‘just’ wage, and ‘sufficient’ wage
• Fairness and dignity, not just a poverty focus
"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]
National Institute of Labour
Studies, Flinders University
• Drew on Rerum Novarum, Pope Leo XIII, 1891
• "must be enough to support the wage earner in reasonable and
frugal comfort.“
• First basic wage, HB Higgins in the Harvester judgement, 1907
4
Poverty and minimum wages
•
•
•
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
• Much evidence that poverty undermines social inclusion, for adults
and their children
• Do minimum wages reduce poverty?
• Complex and controversial.
5
Earnings inequality has risen
National Institute of Labour
Studies, Flinders University
source:Fair Work Commission StatisticalReport Annual Wage Review 2012-13
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
deck aircraft
National Institute of Labour
Studies, Flinders University
• $149,516, for captain of wide bodied double
• $74,386 for Level C (6) academic
• $95,653 for Level E (professor)
• $105,136 for senior doctor
7
Are minimum wage earners
poor?
• Living standard is determined by household income, not
individual income
• 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
National Institute of Labour
Studies, Flinders University
• ¾ of award-reliant are in multiple-earner HH
• 2/3 are women, average age 38
J. Healy, “What role do safety net wage adjustments play in alleviating household need?, 2011, JIR 53:2, 169-192
8
Indicators of stress/deprivation 2009-10
All adult employee HH compared with HH with only low paid employees
source:FairWorkCommissionStatisticalReportAnnualWageReview2012-13:datafromHES
•
•
•
•
•
•
•
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
All
Low paid (below 2/3
median)
14
4
3
24
18
18
31
21
7
2
32
21
24
38
National Institute of Labour
Studies, Flinders University
Stress indicator
9
Conclude
• Low paid and award-reliant are not the same
• 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
• Although award-reliant are low paid for their skill/work
10
Do minimum wages reduce jobs?
•
•
•
•
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
National Institute of Labour
Studies, Flinders University
• Much studied in US and UK, though harder in Australia
• Australia different because
• US extensive research
• Mixed findings, but probably small job loss in response to
increase
11
Why is there not obvious job loss?
• 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
• Wage rises are a normal part of the economic environment in
which firms operate (award and above award)
• Firms have many ways of adapting
12
• 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
Do minimum wages affect social
inclusion?
13