Australia had, until fairly recently, a system of wage determination, and of industrial relations more generally, that had only one or two counterparts in the rest of the industrialised world. Although this system underwent considerable change under the Hawke/Keating governments and this continued under the Coalition administration, a major distinguishing feature of the Australian system remained the role played by a range of arbitration and conciliation tribunals, the dominant institution being the Australian Industrial Relations Commission (AIRC), although it formerly had other titles. These tribunals set the minimum rates of pay and the conditions of work of employees set out in awards. However, by 2005 only about 20 per cent of Australian workers relied on awards for their pay determination. National awards took as their benchmark the so-called safety-net increases determined by the National Wage Case decisions of the AIRC. These decisions were made after an exhaustive process of written submissions by employer groups, unions, government bodies and other interest groups, with evidence and cross-examination taking place in an adversarial court-like setting lasting several months.

With the passing of the WorkChoices legislation in 2006 the role of the AIRC in setting minimum wages, and the subsequent changes to national awards, passed to the newly created Australian Fair Pay Commission (AFPC). The five commissioners, including the chair, Professor Ian Harper, were appointed by the government and differed from the AIRC Commissioners, many of whom had had extensive experience in the court room of the AIRC in their role as union or employer advocates. AFPC decisions were to be made on the basis of legislation alone, not based on arbitration between multiple parties, through a review process rather than a court-like process. Perhaps most importantly the AFPC had to consider in its reviews the capacity of the unemployed and low paid to obtain and remain in employment, something which could not be considered by the AIRC.

The AFPC was heralded by its supporters as a major improvement on the previous system of Safety Net wage cases under the AIRC, but it was universally condemned by the union movement and Labor; and some economists questioned whether a minimum wage was needed at all or even whether it was a major impediment to labour-market adjustment.

In its first decision in October 2006, the AFPC handed down a two-tiered increase, with an immediate adjustment to the minimum wage of $27.36 and a lesser increase for awards above $700 per week. And while it did cover a period of 18 months since the previous Safety Net adjustment by the AIRC, and therefore on an annual basis could be seen as equivalent to an increase of $18.24 (or 3.8 per cent) for each year, employers were taken by surprise in regard to the size of the increase granted. In its second decision, in July 2007, the AFPC increased the standard Federal Minimum Wage and all pay scales up to $700 a week by $10.26 per week and all pay scales paying $700 and above a week by $5.32 per week. Both increases applied from the first pay date on or after 1 October 2007. Taken together, the AFPC’s 2006 and 2007 increases delivered an additional $37.62 per week to Australia’s lowest-paid workers.

What was of note was that the two increases over the respective period since the previous Safety Net adjustments were, in percentage terms, almost identical to the movement in the Consumer Price Index (CPI) over the same period (the increase in the minimum wage between April 2003 and October 2007 was 7.8 per cent compared to a rise in the CPI between March 2003 and September of 7.3 per cent). It therefore had for employers an ominous look of having been an increase based on the underlying, but un-stated, concept of wage indexation.

The concern therefore was that a process of wage adjustment was being introduced which, for all the gloss of it being economically based, was in reality a continuation of centralised wage fixation (AIRC 2005) under a different name. No principles were being introduced that would provide an upper limit on the level of increase. Indeed, as discussed below, the AFPC, in its interpretation of the legislation, introduced virtually no principles at all, and the appearance of a system of an ad hoc decision-making process based on the personal views of the five commissioners was the essence of the new system.

Of even greater concern was the absence of any evidence that the AFPC considered the capacity of the unemployed and low-paid to obtain and remain in employment, despite the legislative requirement that it do so. Given this neglect, the paper now turns to unemployment, and the impact of minimum wages on employment. The sections that follow argue the need for greater consideration of the jobless in minimum-wage decisions, the need for a better framework in reaching these decisions and, finally, some thoughts on how the new federal government might improve on the current arrangements.