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Wage inequality leaving workers in poverty


Man with empty pocketsWe will soon know the outcome of the Annual Wage Review 2013. The decision of the Fair Work Commission will increase the wage packet of the one in six workers who is only paid the prescribed safety net wage.

The size of the increase will attract headlines and editorial comment. But the longer term importance of the decision will be in its response to past minimum wage decisions. This year, more than ever, the Commission has been confronted with evidence that the safety net wage system has failed low paid workers and their families.

From December 2000 to December 2012 Average Weekly Ordinary Time Earnings increased by 74.4 per cent, far outstripping price increases of 39.5 per cent, due to increasing productivity and a dramatic change in the Terms of Trade. Even through the five years straddling the GFC, these average earnings increased by 26.6 per cent.

The rivers of gold that flowed into the Commonwealth Treasury in this period have funded the extension of family payments to the middle class, large tax cuts for high income earners and much needed increases in pensions.

The problem with changes in aggregates, such as average weekly earnings and Gross Domestic Product, is that they can hide counter-trends and growing inequality.

Despite increasing national wealth, the unemployed languish on $35.50 a day and the Commonwealth Government has made life much tougher for sole parents by their transfer from the Parenting Payment to the poverty-inducing Newstart allowance.

Wage inequality has grown greatly over the past decade or so. A worker employed on a wage rate of more than $767 per week had a real wage cut over the 12 years. All safety net-dependent workers were relatively worse off in 2012. A major cause of the current situation has been the failure of successive wage-setting tribunals to adjust safety net wages to reflect increases in community earnings.

A very troubling consequence of increasing wage inequality is that a growing number of people have fallen under rising poverty lines.

In December 2000 a family of four dependent on the Federal Minimum Wage, now called the National Minimum Wage, was $1.03 per week under the poverty line (set at 60 per cent of median disposable income). By December 2012 the poverty gap had grown to $109.46 per week, equal to an annual loss of about $9 per week.

This extraordinary change places enormous pressure on the second parent to get a job just to make ends meet. A similar family who depends on the base trade-qualified wage rate saw their margin of 11.4 per cent above the poverty line fall to 2.8 per cent under the poverty line, with a poverty gap of $28.70 per week. By contrast, the same family on average weekly earnings had risen from 24.7 per cent to 26.9 per cent above the poverty line.

These changes also impact sole parents unable to secure full time work because of a lack of work or affordable childcare. Many sole parent families live in poverty with no prospect of their minimum wage lifting them out of it.

Research commissioned by the Australian Council of Social Services in 2012 showed that 7.1 per cent of full time workers are below the poverty line and 20.5 per cent of those who are living in poverty are in, or rely on, full time employment.

Poverty matters, especially for children and their capacity to develop and participate fully in our society. Poverty and social exclusion also have social and economic costs which require government action.

The rivers of gold into the Commonwealth Treasury have dried up and programs that have provided some relief to struggling families are being wound back. The budgetary constraints will redirect attention from the public purse to the wage packet. Families need considerable assistance from government, but, in principle, a decent wage is to be preferred to welfare.

Whether or not large cohorts of workers and their families continue to live in poverty depends on the decisions of the Fair Work Commission. The situation has been laid out before it. The proper response requires commitment to an evidence-based program that gives proper weight to the need to avoid working families living in poverty and to give them the prospect of a way out of poverty which recognises the value of their work.

Brian Lawrence headshotBrian Lawrence is Chairman of the Australian Catholic Council for Employment Relations (ACCER). A summary of ACCER's submissions to the Annual Wage Review is available online. Download PDF

Image from Shutterstock

Topic tags: Brian Lawrence, Annual Wage Review, Fair Work Commission, minimum wage



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Existing comments

Thanks Mr Lawrence. The rest of the economy,especially all those "captains of industry", need to reflect on the fact that inadequately paid workers cannot do their bit in maintaining the levels of consumption on which the captains' exorbitant pay packets depend.

David Arthur | 28 May 2013  

'Poverty matters'. That's a powerful statement and a truth that should be at the heart of Australia's chief political concerns. Sadly, of course, poverty is not high on our nation's political agenda. Australia's business, political, corporate and religious leaders have within their power the ability to raise the level of concern about inequality in our society.

Robert Van Zetten | 28 May 2013  

Here we go again! It is not the fault of the so-called high income earners that our Government has gone broke. These “high income people” are often professionals like teachers, doctors, nurses, engineers, trade people etc. The have worked hard and are driving our economy and they deserve a fair go. It also includes people having moved from the comfort zone of suburbia into some of the most remote places on earth to earn good money to secure their future and the future of their children. Should these people be punished for moving and working hard for very long hours? The Government is not wasting any money on hard working families, but is wasting Billions of Dollars giving to the sporting industry. Organisations like the AFL are huge businesses with massive incomes and do not need or deserve Government charity. The abuse of tax free status of in the religion and welfare industry needs more attention then taking the child care rebate away from a working family. We don't need ANY politicians to travel outside Australia on tax payer funded journeys. We have electronic communication, which is far cheaper and useful then “study tours” to all nice tourist destinations across the globe.

Beat Odermatt | 28 May 2013  

Beat Odermatt - Many workers on the National Minimum Wage work extremely hard and for long hours too. That's one of the great inequities in our society.

robert van zetten | 28 May 2013  

High income earning teachers and nurses, Beat Odermatt? What planet are you living on? I wouldn't call suburbia the comfort zone - I would love the opportunity to get out of the banal boring grind of city living to work in a remote area. (No sacrifice to me living in the bush if you like nature)

AURELIUS | 28 May 2013  

To Robert and Aurelius: Yes, many professional people, including teachers and nurses are now classified as “middle to high income earners”. These people deserves the money because they would have studied hard, they may work overtime and many people live in remote areas to earn good money. Anybody who ever has lived or worked in a remote area knows that suburbia is a comfort zone. In remote areas there is “nature”, but children have to be sent away to expensive boarding schools, the nearest hospital may be a 6 hour drive and a dentist may visit your location twice a year. Compared to most countries in the world, most people are still very well off. We still have far too many poverty traps. Instead of complaining, it may be a good idea to try finding a job in a remote area and then you can “enjoy nature”.

Beat Odermatt | 29 May 2013  

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