by Nick Wailes & Russell D. Lansbury

I. The types of flexibility introduced:
. . C. Pay determination procedures and systems

1. Changes in wage protection provisions such as minimum wages and means of maintaining the purchasing power of pay

Minimum wages

Traditionally, Australia has not had legislated minimum wage levels because of the restrictions placed on the federal government by the Australian Constitution in relation to these matters. Minimum levels of wages have typically been contained in state level legislation and in wage rates outlined in industrial and occupational awards made by the Industrial Relations Commission. Federal industrial awards have been the most important source of these minimum levels for the majority of Australian workers. Rates of pay specified in industrial awards have typically been minima but in some cases awards have stipulated actual paid rates.

Minimum levels stipulated in awards have traditionally been based on considerations of what level of remuneration constitutes a living wage. This doctrine was originally developed by the arbitration body in the 1907 Harvester decision which defined a living wage in terms of the needs of a family. In addition to assessing a living wage level, award wage levels were also based on principles of fair comparability between different occupations and a complex system of relativities between wage rates in awards was developed. This produced a wage structure in which increases gained by workers in certain key sectors, like those contained in the Metal Trades Award, quickly translated through the entire wage structure (Buchanan and Watson, 1997).

The changes in the system of wage determination in Australia since the mid 1980s (which are detailed below) have sought to separate the living wage component from the relativity component of wage determination, which historically have been inextricably linked. While changes introduced by the Labour government attempted to link wage levels to productivity, and lessen the role that award regulation plays in wage determination, efforts were made to ensure and protect the adequate and fair minimum rates of pay contained in awards.

As part of process of constructing a system of coordinated flexibility, the 1993 Reform Act introduced a range of measures to reshape awards into a "safety net" underpinning enterprise bargaining. This included using the external affairs power to give the AIRC the ability to make rulings establishing "minimum wages" regardless of whether an industrial dispute existed within the traditional definition (Short and Buchanan, 1995: 120). This was designed to bring all awards into line around an accepted standard of a minimum wage. Furthermore, the AIRC was charged with ensuring that the award system remained a relevant and effective system of protection for workers. During the course of the 1990s, this resulted in the development of the "safety net principle" by the AIRC in National Wage Cases (NWCs). Developments in recent NWCs are discussed in more detail below.

The current Liberal and National Coalition government came to power with a manifesto which included a commitment to reduce the role of the award system and unions in the process of wage determination. Coalition policy proposals during the early 1990s had envisaged that such a reduction could be achieved by making award coverage a voluntary process which workers and employers had to "opt" into (Dabsheck, 1993 and 1995). However, electoral defeat and an assessment of political realities resulted in a reversal of this position prior to the 1996 election (ibid; Buchanan et al., 1997; Wailes, 1997). Having accepted a continued role for awards, the ability of the new government to prevent minimum conditions contained in awards having an impact on wage determination has been circumscribed (Ronfeldt, 1997).

Instead, the Coalition has introduced changes that restrict the scope of matters over which the AIRC has jurisdiction. The changes incorporated in the WROA Act have restricted the content of awards to 20 allowable matters, including the specification of minimum rates of pay, but prevent the specification of actual paid rates in awards. Furthermore, decentralized forms of bargaining, which include both collective union and nonunion-based collective enterprise agreements and individual contracts, are subject to a no disadvantage test in relation to the relevant awards. This has maintained a connection between minimum conditions contained in awards and the content of enterprise and individual agreements. The retention of a no disadvantage test was one of the concessions that the federal government had to make in ensuring passage of the WROA Act. Therefore, notions of minimum appropriate and fair levels of pay will continue to play a role in the process of wage determination.

Ironically, as these changes were being introduced, the AIRC was in the process of considering a NWC based on the ACTU's Living Wage claim. More details of the Living Wage Claim (and NWCs during the late 1980s and early 1990s) are discussed below. Nevertheless, some discussion of the Living Wage Claim is warranted here. Central to the Living Wage claim are union concerns to establish a broad and effective minimum wage standard and minimum wage increases in the award system which will provide a basic level of protection on which to engage in decentralized wage bargaining (Buchanan and Watson, 1997 and Buchanan et al., 1997: 12-13). The potential for a NWC to alter the pattern of minimum wages reflects the continued role of the AIRC in wage determination.

Overall, developments in relation to minimum wage levels that have accompanied decentralization of wage determination have produced a situation in which the safety net provided by awards tends to prevent the use of downward wage flexibility as a major source of adjustment under the federal jurisdiction. This is consistent with the view that downward wage flexibility may not be a desirable form of flexibility and may damage the prospects for increasing other forms of flexibility more closely associated with improved economic performance (Bray and Taylor, 1991). While the new government does not share the same concerns about the negative consequences of downward wage flexibility, they have not been able to introduce changes which significantly alter the nature of minimum wage protections.

Wage Indexation

There has been no substantive indexation of wage levels in Australia during the 1990s, although efforts to maintain the real value of wages have been incorporated into safety net increases associated with National Wage Cases (see below for more details on NWCs).

Indexation of wages in Australia has not traditionally been associated with attempts to maintain the purchasing power of wages but rather has been used in attempts to control inflation by limiting real wage growth. Like many other OECD countries, Australia experienced unprecedented wage and price increases in the early 1970s. Limitations placed on the federal government by the Australian Constitution have prevented legislated adoption of an incomes policy, but the Industrial Relations Commission adopted partial indexation of wages in 1975 in an effort to stabilize wage levels (see Lansbury, 1978). To a large extent, the Commission was able to ensure that NWCs indexed to the consumer price index stabilized wage levels during the period 1975-1981, and was able to resist employer and government calls for a wage freeze and union calls for greater wage increases. The development of private sector over-award bargaining in the late 1970s and early 1980s resulted in the abandonment of indexation by the Commission on 31 July 1981 (Dabsheck, 1994 & 1995).

In 1983, with the election of the Hawke Labour government, wage indexation was reestablished by the Commission on the basis of union agreements not to seek wage increases through other sources. This was to provide the basis for good economic performance during the period 1983-1985, but external economic shocks resulted in a deterioration of the Australian economy from the mid 1980s. The ACTU and the ALP agreed that structural economic changes and increased labour market flexibility were necessary to overcome the problems of the Australian economy, and that wage indexation was not consistent with these aims. On application from the ACTU and the ALP, the Industrial Relations Commission abandoned indexation of wages in December 1986 in favour of an alternative means of determining the level of wage increases in the economy related to productivity increases and structural change.