Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Workplace Relations Legislation Amendment (Youth Employment) Bill 1998



Download WordDownload Word

Bills Digest No. 60  1998-99

 

Workplace Relations Legislation Amendment (Youth Employment) Bill 1998

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not h ave any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Contents

 

 

Passage History

Workplace Relations Legislation Amendment (Youth Employment) Bill 1998

Date Introduced:  26 November 1998

House: House of Representatives

Portfolio:  Employment, Workplace Relations and Small Business

Commencement:  The operative provisions of the Bill come into effect 28 days after Royal Assent.

Purpose

The Bill amends the Workplace Relations Act 1996 and the Workplace Relations and Other Legislation Amendment Act 1996 (the Principal Acts) to:

• promote the inclusion of junior rates in awards and workplace agreements, and

• exempt junior wage rates from the anti-discrimination provisions of the Workplace Relations Act.

The Bill does no t directly legislate for a reduction in existing youth wages but may have the effect of encouraging the Australian Industrial Relations Commission (AIRC) to insert new junior rates of pay in awards where they are not presently in force.

Background

Statistical and Theoretical Issues

As at October 1998, the seasonally adjusted unemployment rate for persons aged 15-19 years looking for full-time work was 27.0%. The comparable figure for persons aged over 20 years looking for full-time work is 7.1%.(1) The seas onally adjusted figure for total unemployment was 7.7%.

Reasons for the comparatively high levels of youth unemployment have been hotly debated for sometime and are discussed below. In brief, the causes of youth unemployment are ascribed to three factors:

• inadequate levels of total demand in the economy

• unsustainable levels of youth wages

• structural and technologically induced changes in the labour market.

These are often portrayed as competing explanations of a single phenomenon. However, like recent academic commentators’ suggestions for tackling unemployment generally, youth unemployment is a multi-faceted problem,(2) probably requiring a multi-pronged policy response.

It is beyond the scope of this Digest to analyse these theoretical issues in depth. Reference, however, is made below to a number of views canvassed recently, including in official government publications. A series of tables and graphs is included in the Appendix to help individual readers to make their own assessments.

The statistical evidence presented offers something of mixed picture. Over time there appears to be a strong positive relationship with between levels of total unemployment/levels of economic activity and levels of unemployment amongst 15-19 year olds. For much of the past twenty years there has been a ratio of about 3:1 between youth unemployment and total unemployment. However, there have been departures from that ratio and this suggests:

• the market for the employment of 15-19 year olds is fragile and may be deteriorating (ie the ratio increases when the job market weakens generally and the ratio appears to be widening in recent times)

• generally a decline in total unemployment will cause a more dramatic decline in youth unemployment rates.

This apparent link between levels of total unemployment and youth unemployment tends to support the ‘demand effect’ (‘Keynesian’) view of the world.

Other evidence presented in the Appendix, however, provides support for the ‘wage effect’ (neo classical) view that youth unemployment is largely attributable to youth wages being too high. This view was reiterated recently in the context of the Australian debate by a leading American economist, Professor Dan Hamermesh of the University of Texas.(3)

Evidence presented in the Appendix would also suggest that rises in youth wages tend to have a more pronounced effect on the employment prospects of young females than of young males. This is probably reflects labour market segmentation whereby certain callings and trades are male dominated and others characterised by a greater proportion of female employees, eg retail services. In simplistic terms, a lift in the wages of a young bricklayer is comparatively unlikely to see him replaced by a 45 year old male returning to full time employment. However, a young female worker in sales appears to be more vulnerable to being displaced by a mature female returning to the paid workforce from full-time domestic duties and rearing a family.

Changes to the structure of the workforce and the nature of work also have a part to play in accounting for high rates of youth unemployment. This factor appears to be exhibited in a further weakening in the youth labour market in relative terms over the last two decades despite various training schemes, higher (for the most part) retention rates in schools and tertiary institutions and the continuation of junior award rates in many industries.

Economic analyst, Ross Gittins, has described these structural changes in the following terms:

The fundamental reason unemployment is somewhat higher among teenagers is the dramatic decline in employer’s demand for young, unskilled, full-time labour. Over the past 15 years, the number of full-time jobs held by teenagers has declined by 60 percent.

The main explanation for this is technological change. Many of the menial jobs once done by teenagers are now done by machines, and employers hire older and more highly educated young people to work with those machines.

(Another development, however, is that many menial jobs in retailing formerly done by full-time juniors have been split into several part-time jobs. Over the past 15 years, the number of part-time jobs held by teenagers has increased by almost 150 percent. For teenagers, there are almost twice as many part-time jobs as full-time. Nearly two-thirds of these part-time jobs are held by full-time students.)(4)

A further aspect of the current debate is that there is a considerable gap between how the problem of youth unemployment is perceived within the community and how it is viewed by academic commentators and policy makers.(5)

For example, Gittins’ comment that ‘ ¼ unemployment is somewhat higher among teenagers…’ would appear at odds with wider community sentiment (see above).

Public concern at seemingly intractable(6) ‘headline’ levels of youth unemployment hovering in the vicinity of 30% is not surprising but is, in part, misconceived.

Most commonly cited statistics refer to the proportion persons aged 15-19 years who are looking for full-time work. The majority of the 15-19 cohort, are not in fact looking for full-time work but are in full-time education and/or part-time employment.

To be precise, as at October 1998, the 15-19 cohort comprised about 1 309 000 persons of whom:

• 562 500 were not in the labour force

• 213 900 were in full-time employment

• 395 980 were in part-time employment

• 70 800 were unemployed and looking for full-time work

• 66 000 were unemployed and looking for part-time work.

The latter two figures combined (full-time and part-time unemployed) represent 18.3 percent of 15-19 year olds in the labour force and 10.45 percent of the total 15-19 year old group as a whole.(7)

Compounding any popular misconception about youth unemployment are a number of what might be called ‘qualitative aspects’ of the public debate. Again, the treatment here cannot be exhaustive and the issues are raised as a series of questions to test (but not necessarily challenge) some of the popular thinking about this problem.

• Given the unique nature of the labour market for persons aged 15-19 years as discussed above, is legislating of ‘special measures’ to advantage the competitive position of this group equitable? Is it more of a social ‘tragedy’ for a person aged 16 years but with no dependents to be unemployed, than it is for a 45 year old divorcee with a mortgage and two dependents to support?

• Is too much emphasis placed on the difficulties of those who have left formal education early, rather than on the 20—24 age group which also experience higher than average levels of unemployment (over 10 percent against a national average of just under 8 percent)? Or is the plight of the 20-24 year old cohort more deserving of attention given that it contains a greater percentage of persons who have completed formal education and are considering other options such as starting families, yet still cannot find work? Is the 20-24 year old cohort more in need of ‘special measures’ when, in raw terms, there are 20 000 more persons out of full-time work in this group than there are amongst the 15-19 year old cohort seeking full-time work?

• How does one balance the net increase in economic welfare of 15-19 year olds who have work because of junior rates, against any decline in the welfare of older workers who are displaced by such younger persons? How does the retention and possible spread of junior wage rates affect the economic welfare of young persons already in work who may have their wages reduced (or their rate of increase retarded) by the imposition of junior rates?

• To what extent are rising junior wage rates (see Appendix) a product of changes in the age and skill mix within the 15-19 year old cohort? Are junior wage rates rising because those full-time jobs that remain for 15-19 year olds are amongst the more highly skilled and more highly paid?

• To what extent would any spread in junior wages lower unemployment amongst 15-19 year olds because of a resulting fall in participation rates, ie fewer young persons would be attracted to seeking full-time work?

• What proportion of the young unemployed are unemployable at any market determined rate of pay, ie would they get a job even if they worked for nothing?

The above are all complex and demanding questions requiring t he sort of empirical research and modelling which could be expected in the course of a full public inquiry into junior wage rates.

Constitutional and Legal Constraints

It is generally accepted that the Commonwealth Government and its agencies have prime re sponsibility for economic management, including maintaining full employment. It is one of the conundrums of Australian federalism that despite these responsibilities, the federal Parliament has no express plenary power to set wages of workers in the private sector. Other powers are available but either untested or so constrained as to make their use impracticable.

The Commonwealth’s principal power over workplace relations is the conciliation and arbitration power, section 51(xxxv) of the Constitution. This provides that the Commonwealth may legislate with respect to:

Conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State.

The Commonwealth Parliament does not have power under section 51(xxxv) to legislate directly for rates of pay, nor can the Parliament direct the AIRC as to the level of wages it shall prescribe in making an award or industrial agreement.(8)

There is, however, no constitutional impediment to the Parliament giving legislative guidance to AIRC as to what factors it must take into account in making an award or other determination. What the Parliament cannot do is prescribe a precise formula for determining wages and conditions.

Successive governments have adopted the course of seeking to influence the outcome of arbitral proceedings by inserting various public interest criteria in the federal industrial relations statute to assist the tribunal in reaching decisions which accord w ith the Government’s view of what may constitute the public interest.

The Workplace Relations Act contains a number of such provisions, including those:

• establishing the objects of the Act (section 3)

• governing the performance of the AIRC’s functions generally (section 88B)

• setting out a general public interest standard, providing that:

sect.90 In the performance of its functions, the Commission shall take into account the public interest, and for that purpose shall have regard to:

  1. the state of the national economy and the likely effects on the national economy of any award or order that the Commission is considering, or proposing to make, with special reference to likely effects on the level of employment and on inflation.

The current Bill would add to what is already an expansive list of legislative signposts including subsection 3(a) which states that one of the Act’s objects is to encourage the pursuit of high employment and other goals ‘through higher productivity and a flexible and fair labour market’.

The operative effect of such aspirational provisions is a little uncertain. Each leaves the Commission with considerable leeway to determine how such laudable but generally stated objectives are to be met. Hence, the Government may take one view as to what are good policies for reducing unemployment and thereby promoting the objects of the Act, the AIRC may take another. Similarly, the AIRC must give such provisions some weight in its deliberations, but the Act cannot and does not prescribe how much weight.

The proliferation of such ‘public interest’ provisions runs the some risk of either unlawfully fettering the tribunal’s discretion or else sending it contradictory (or at best ambiguous) signals on how it is to perform its work.

This Bill and the AIRC Inquiry

Introduction

As noted above, the object of this Bill is to promote youth employment in part by retaining junior pay rates prescribed in federal industrial awards. Also, by introducing a new objective to the Workplace Relations Act, the Bill al erts the AIRC to possible employment consequences for the employment of young people arising from its decisions. The Bill affords credence to the notion that junior rates are under threat, and questions arise as to why this should be the case. Tentative answers are provided in the next two sections.

The first section addresses junior pay rates in an era of broader competency-based training and pay arrangements applying to adults and trainees across large sectors of industry. The second section looks at the barriers to age discrimination now found in the federal industrial legislation. It looks at how age discrimination provisions conflict with pay system provisions based on the age of the junior, and, presumably, as well for ‘adults’ where an adult is defined as being someone at or over the age 21 years. The Parliament has found solutions, albeit perhaps temporary solutions to these problems. The Government now seeks to entrench junior pay through this Bill.

Competency based training in industrial awards

Si nce 1988 the major industrial parties including the Australian Chamber of Commerce and Industry (ACCI, formerly the Confederation of Australian Industry) representing employers and the Australian Council of Trade Unions (ACTU) representing unions, have moved many award classification and training arrangements prescribed in industrial awards on to a competency based or skills acquired system. This also involves the establishment of consistent, skill based rates of pay.

At first, the move to competency was welcomed indeed urged, by both union and employer organisations. (See: Chapter 4 of Australia Reconstructed - ACTU-TDC Mission to Western Europe, AGPS 1987, and Employer Perspectives on the ACTU-TDC Report: Australia Reconstructed by the Confederation of Australian Industry, 1987). In essence all parties recognised that the old classification system (and pay structures) were no longer adequate to meet the modern needs of industry.

Much of the rhetoric of the late 1980s by unions to their members sought to win over support for ‘multi-skilling’ in the event that access to (and provision of) training would allow workers to move along career paths and access higher wages. To be fair, th e rhetoric has not been entirely wasted as workers have come to appreciate that training for skills improvement substantially enhances employability in what is appearing to many to be a more volatile labour market than that which existed in the 1980s. An additional advantage of competency-based classifications is that they are not discriminatory on other than ‘relevant’ criteria - a point observed in the Joint Governments’ Submission to the AIRC’s Junior Rates Inquiry(9) - the governments include all State, Territory and Commonwealth governments excluding Tasmania, Queensland and New South Wales) :

As well as being non-discriminatory, the main advantage of skill-based classification structures is that they create incentives for skill formation by ensuring that employees capture the benefits of acquiring higher skills through higher wages. And, to the extent that differences in the value of employees is correlated with the skill and competency criteria used to define progression through the wage scale, this addresses the employment substitution effect …(10)

Support for the transition to skills-based wages was also required of the AIRC. An ‘award restructuring’ exercise was attempted largely over the period 1988-1991 in respect of federal industrial awards to re model award classifications using competency-based principles. It was facilitated through a new principle devised by the AIRC, the Structural Efficiency Principle (SEP). The SEP slim-lined award classifications and revamped duties and training. It required award classifications to incorporate prescribed competencies, detailed for each classification. Stepping through the classifications via training and over time, was to provide a career path where one may not have existed previously.

The SEP continues to be recognised by the AIRC in its Statement of Principles. These principles govern its approach to making and varying awards.(11) The award restructuring exercise was also strongly supported by the previous government, evident in certain provisions of the Industrial Relations Act 1988 designed to modernise and review awards. The policy objective was to broaden the skills base of Australian industry and allow industry to become internationally competitive, to permit employees to engage in a wider range of tasks and enhance their ability to access higher pay through career paths and training.

The competency-based system continues to operate in those industries where it has been employed. Manufacturing generally has moved over to the new structure and the (former) Metal Industry Award was adopted by the AIRC as the benchmark award for setting classifications and pay rates in its August 1989 National Wage Case Decision.(12) A clear manifestation of the joint efforts of governments to improve the skills based training system, is the adoption by all governments of the national Australian Standards Framework (ASF) for detailing skill levels used in apprenticeships and traineeships.

However, this principle was applied on an award by award basis and the move to competency based training and career paths has not been uniform. For example, there has been slower movement by the sections of the Services sector to restructure award classifications on to the competency-based system. It has been observed particularly in the Carmichael Report(13) on Australian skills and training, that sections of the Services sector have relied on a more disparate model of skill development than that pertaining to trade training in manufacturing. The Carmichael Report was a vocal supporter of competency-based training.(14) In its review of the progress of sectors adopting competency-based training, the Carmichael Report noted that some areas of the Services sector such as the retail industry were lagging other sectors:

The retail industry favours an evolutionary approach to the development of competency standards. It proposes that any development of standards should take place at enterprise or local level, which may then lead to industry standards. This was based on a claim of virtual enterprise uniqueness in training needs.(15)

A major initiative to assist the services sector to adopt competency-based training, including training for juniors, was the creation of the federal National Training Wage Award 1994. It has been used as a training and pay regime for thousands of diverse industries and occupations (stipulated in the schedules attached to the award). It embodies many of the themes of the Carmichael Report. Specifically, it links classifications and pay scales to school achievement and competency required of the job, not the age of the people employed under the award although there are obvious links between the ages of school leavers (ie, Year 10 or Year 12) and levels of competency expressed in that award. It also represents an ‘add-on’ to traditional award based training systems (for apprentices and trainees). It was designed to fill the gap for industries that had not formalised award training schemes.

How young people are paid

Young people are paid as:

•  apprentices

• trainees

• juniors, or

• adults.

A 'junior' differs from apprentices and trainees in that s/he is expected to be working full-time receiving no training. Their pay is usually based on their age starting at 45% of an adult's pay for a 16 year old and increasing in steps on each birthday until age 21 is reached when juniors are entitled to adult pay.(16)

The Joint Governments’ Submission notes that some 56 per cent of those employed aged 21 years or younger are employed under junior rates, ie, using 1996 ABS data, the Joint Governments’ Submission estimates that some 375 000 out of 724 000 employees aged below 21 years were paid under junior rates, ie under State and federal awards and agreements.(17) About 30 per cent are paid as adults and 13 per cent paid as apprentices/trainees.

It is these ‘junior rates’ which may be affected by legislated restrictions on age discrimination, since apprentices and trainees are not classified by age; they are classified on a ‘time served’ basis which is not the same as age. The award classifications reviewed under the SEP pertained to adults, and junior rates of pay have not been subject to structural efficiency principle considerations, as noted in the Joint Governments’ Submission:

A related development …  to the recent history of junior rates, was the agreement to principles and guidelines for reforming youth and training wages by all Commonwealth, State, and Territory Ministers for Labour in 1990. These principles/guidelines reflected governments’ concerns about the consequences for youth employment of the changes arising from award restructuring. They included a principle that ‘There should be no hasty movement away from youth/age related wage rates in those areas where they now apply, unless a suitable skills and experience based replacement is available and suitable provision can be made for unskilled young workers.’ All governments restated their commitment to these principles in May 1995.(18)

An important step in moving to competency based classifications pertaining to employees who might have been classified as juniors wa s taken in the AIRC’s decision in the Furnishing Trades Award 1981.(19) As is explained in chapter 2 of the Joint Governments’ Submission, this decision attempted to correlate junior pay with ‘exit rates’ as training modules for the relevant industry were completed by young people. This appeared to introduce a form of competency-based training for ‘juniors’ and provided a pay scale to fill the gap between the wages afforded to trainees (after training was completed) and wages applying to more fully competent workers.

Age Discrimination

Age discrimination provisions to limit employment discrimination under federal industrial legislation were moved during debate on the Industrial Relations Reform Bill 1993. Certain parts of the Bill dealing with awards and ag reements were amended (at the instigation of the Australian Democrats and the WA Greens) to include further provisions that awards and agreements be non-discriminatory, and age was itemised as one of the non-discriminatory criteria. These provisions reflected principles of ILO (Discrimination (Employment and Occupation) Convention (No.111) which deals with discrimination in the workplace.

It was later discovered that the new provisions might undermine awards and agreements that set specific pay rates for juniors. The Industrial Relations Act 1988 was further amended in 1994 to neutralise this possibility.(20) The then government proposed to defer the application of age discrimination by way of an amendment. A breathing space to mid 1997 was provided legislatively and junior rates of pay continued in operation.

Age discrimination under the Workplace Relations Act

With the change of governmen t in 1996, a new Act, the Workplace Relations Act was passed containing similar anti-discrimination provisions to those in the Industrial Relations Act 1988 , and thus arguably faces a similar conflict in respect of the discrimination provisions and junior rates. After consultations between the Government and the Australian Democrats an Agreement between the Commonwealth Government and the Australian Democrats on the Workplace Relations Bill (October 1996) was devised to pass the Bill. It devised a similar stopgap measure: defer the application of the discrimination provision until mid 2000. This allowed junior rates to continue in effect whilst the AIRC was to conduct a review of junior rates and put possible solutions. The AIRC was to report to Parliament not later than one year before the expiry of the exemption.

There are two important provisions.

The first provision is to be found in the legislation that introduced the Workplace Relations Act 1996 (by amending the Industrial Relations Act 1988). That legislation is the Workplace Relations and Other Legislation Amendment Act 1996. This Act introduces transitionary provisions to move from the IR Act to the Workplace Relations Act. Subitem 54 (1) of these transitionary provisions states:

A provision of an award does not discriminate against an employee for the purposes of par 49 (8) or 51 (7)(f) merely because:

it provides for a junior rate of pay …

And, under the Workplace Relations Act sections 143(1D) and (1E), (and via subitem 54(2) of the WROLA transitio nal provisions, award junior rate clauses will not be held discriminatory until 22 June 2000.(21)

Section 120B of the Workplace Relations Act set out in detail that the AIRC is to conduct an inquiry into junior rates, and report to Parliament:

SECTION 120B-COMMISSION TO REPORT ON JUNIOR RATES OF PAY

The relevant provisions are as follows:

120B(1) [Feasibility report]…Before 22 June 1999, a Full Bench must prepare a report for the Minister on the feasibility of replacing junior rates with non-discriminatory alternatives.

 

120B(2) [Contents]…The report must include assessments of:

 

(a) whether it is desirable to replace junior rates with non-discriminatory alternatives; and

 

(b) the consequences for youth employment of abolishing junior rates; and

 

(c) the utility of junior rates:

 

(i) for different types of employment; and

(ii) for different industries; and

(iii) in the school-to-work transition.

 

120B(3) [Report to be tabled in Parliament]…The Minister must cause a copy of the report to be tabled in each House of the Parliament as soon as practicable after the Minister receives it.

 

120B(4) [``junior rates´´ defined]…In this section, junior rates means junior rates of pay.

 

On 25 August 1998, a Full Bench of the AIRC comprising Justice Munro, Deputy Presi dent Duncan and Commissioner Raffaelli issued a Statement and Outline of Procedure for its Junior Rates Inquiry. The Inquiry is to focus on:

•  whether it is desirable to replace junior rates with alternatives that do not discriminate on the basis of age;

•  the consequences for youth employment of abolishing junior rates; and

• the utility of junior rates for different types of employment, for different industries and in the school-to-work transition.

The AIRC also signalled its intention to produce an issue s paper by November 1998 and in February 1999 publish a paper setting out its provisional findings. It is due to complete its report to Parliament by 30 April 1999.

ACCI Submission (Summary)

The case to retain aged-based pay rates for juniors has rested pr edominantly on the needs of the retail and fast food industries. Some sectors of these industries have not adopted competency based award classifications for juniors therefore there is the perception that an 18 year old will be able to perform a task with equal application as a 20 year old. Accordingly, labour costs could rise under competency-based pay. And, if an employee moves through competency levels, but is required to perform work of a lower competency level, what rate should be paid?

The ACCI has made the following points in its submission to the AIRC inquiry favouring the retention of junior rates. They are:

•  Youth unemployment is already high, and the onus on those supporting the removal of junior rates is to show that such a change would not damage the job prospects of unemployed young people.

• Costs Matter: The higher the cost of employing, the fewer persons will be employed.

• Young people have fewer skills and less experience

• Young people are less mature than are adult employe es

• Employers believe that young people have fewer skills and are less mature than adult workers.

• It is not discrimination to pay less to young workers who are less skilled and who have less experience

• The prime interest for young people is to gain wo rkplace experience and develop labour market skills

• Where junior rates have been eliminated there has been a reduction in youth employment

• International data show that paying adult wages to young people costs them jobs

• Removing junior rates will lead to higher retail prices.(22)

ACTU submission (summary)

• The ACTU submission sets out the roles that the AIRC must perform under the legislation. It notes that Full Benches of the AIRC can determine principles dealing with awards.

• In carrying out its fu nctions the AIRC may need to deal with the merits of an award concerning junior rates on a case by case basis. However, the ACTU observes that ‘it is utterly inappropriate for a Full Bench of this Commission to be asked to provide advice to the Minister and the Parliament on the merits or otherwise of any contemplated changes to the Act’.

• The ACTU stresses that replacement of junior rates with (any number) of non-discriminatory alternatives is feasible.

• The AIRC should not make an assessment of the desirability of replacing junior rates with non-discriminatory alternatives as making such an assessment may pre-empt a determination of the merits of a later application (which may seek the replacement of junior rates).

• In relation to the terms of reference relating to the probable consequence for youth unemployment of abolishing junior rates, the ACTU submits that there needs to be a clear distinction between the likely consequences of abolition simpliciter and the effective abolition through replacement with specified non-discriminatory alternatives.

• As to the utility of junior rates for different types of employment, in different industries and in the school-to-work transition, the ACTU suggests that the key issue is ‘useful to whom’ and it is not to be assumed that the utility of junior rates to young workers and their families is necessarily commensurate with the utility of the same provisions to actual or potential employers.(23)

Joint Governments’ Submission (summary)

• Junior rates are inherently co nducive to youth employment and any inequity occasioned by junior rates is greatly outweighed by the inequities consequent on their abolition.

• There are no feasible alternatives to junior rates - non-discriminatory or otherwise - as all of the available alternatives have a detrimental effect on youth employment, do not properly reflect differences in skills and maturity between young people and adults, or are difficult and costly to implement and administer.

• The anti-discrimination provisions of the Workplace Relations Act are concerned with equality of opportunity just as much as with equality of treatment. This submission argues that in assessing the status of junior wage provisions it is essential to consider the practical effect if those provisions are removed, as well as considering the practical effect of the junior wage provisions currently in place.

• Removing those provisions would severely damage the youth labour market in Australia, and would be likely to result in many young people experiencing protracted unemployment, with potentially permanently damaged prospects of labour force integration and reduced career prospects over the longer term.

• Therefore to the extent that junior wage provisions are considered to be discriminatory, they should be characterised as a special measure that operates beneficially to meet the particular needs of young people, who are generally recognised as needing special assistance.

• In the Joint Governments’ view, the continuation of junior rates should be supported on this basis, that is, that they are a positive assistance to youth employment and removing them would be detrimental to youth employment. This is the principal reason that the Commonwealth proposes to legislate for the retention of junior rates.

• In this respect the Commonwealth’s proposed legislation would align with the laws that currently operate in the States and Territories, under which junior rates are exempted from anti-age discrimination provisions.

• This, together with proposed provisions designed to make junior rates more widely available, and to ensure that regard is had to the promotion of youth employment and the reduction of youth unemployment in the making and varying of awards, will ensure that young people are neither disadvantaged nor their labour market position compromised.

The effect of this Bill on the Junior Rates Inquiry

State jurisdictions have faced and addressed the matter of junior wages an d discrimination with much less fanfare than is the situation federally. The Joint Governments’ Submission notes:

All State and Territory Governments, with the exception of Tasmania, have introduced age discrimination legislation. Each provides an exemption for junior rates from the requirements of the legislation. The exemption is permanent in all States except New South Wales where it can be repealed by proclamation (24)

The present Bill contains a similar solution to the junior rates/pay discrimination problem to that adopted by the States [see proposed subsection 88B(4) ]:

For the purposes of paragraph 3(e) junior wage provisions are not to be treated as constituting discrimination by reason of age.

This is the key provision of the new Bill.

Critics of t his approach will suggest that it is difficult to avoid the conclusion that the introduction of the Bill is pre-empting the AIRC’s inquiry to evaluate the possibility of non-discriminatory alternatives under s.120B. However, it should be noted that the Bill is not so prescriptive as to prevent the wider application of non-discriminatory classification structures, including to those now employed as juniors.

Possible Employment Effects

As to whether there is an employment consequence, the one possible consequ ence being raised is if 18/19 year olds will finish up being paid as adults if junior rate are abolished - in this case the employers are saying that they will hire adults instead. There is copious literature on the effect of minimum wage increases (some is attached to the Joint Governments and Productivity Commission reports). However, some of it does not address the ‘displacement issue’ as it relates squarely to the US minimum wage debate, and not the Australian institutional settings or the Australian labour market.

In the US, some key studies have found that increases in the minimum wage have not harmed employment. The US does not have legislated junior pay rates, and 16 year olds have to be paid what in Australia would be called the minimum adult wage ($US 5.15) an hour after 90 days.

A particularly important document in respect of junior rates and youth employment is the Productivity Commission Report , Youth Wages and Employment (the PC Report).(25)

As is noted at the start of the PC report, the study arose from consultations on its research program, which led to specific requests for work on this topic by several government departments and other organisations. The paper was prepared accordingly as a technical exercise to help inform the forthcoming review of junior rates of pay. The PC report provides some useful data. In summary it says:

• At face value, the minimum wage studies (primarily undertaken in the United States) suggest that the effect on employment of changes in the minimum wage is small.

• However, it is important to remember that even among teenagers, who are often the most affected by minimum wages, the proportion being paid the minimum wage is relatively small. Minimum wage studies do not say anything about what would happen if the wages of the remaining teenagers were changed relative to employees in other demographic groups.

• Studies of this question look at substitution between particular types of labour. The estimated responsiveness of youth employment to youth wages in these studies is considerably higher than the estimates from the minimum wage studies. The weight of evid ence suggests a relatively large (much more than proportionate) decline in youth employment in response to an increase in the youth wage.

• Teenage real wage costs (as measured by real hourly earnings) have increased slightly. This could explain, at least in part, the decline in full-time employment. But for teenage part-time workers, both real hourly earnings and total hours worked have risen.

• Increased demand for part-time workers resulting from extended trading hours in retail and other service industries could be one factor explaining this trend. While the teenage wage has not changed much relative to the adult wage, teenage employment has declined relative to adult employment.

• For teenage full-time workers, wage costs and employment have both fallen relative to adults. For teenage part-time workers, wage costs and employment have both increased relative to adults. Neither trend is consistent with a strong degree of substitution between teenage and adult workers. Indeed, the trends suggest the opposite.

• The purpose of the study was to examine the determinants of youth employment in order to shed light on the possible implications of abolishing junior rates of pay in State and Federal awards. To the extent that replacing such awards with non-discriminatory alternatives would lead to an increase in youth wages, the results suggest quite strongly that there would be a more than proportionate reduction in youth employment

The Productivity Commission’s most significant finding in terms of the present Bil l however, is that:

The analysis also finds a significant negative relationship between youth employment and youth wages. The best estimates suggest that a 1 per cent increase in youth wages would lead to a decrease in youth employment of between 2 and 5 per cent in industries employing a relatively high proportion of young persons.(26)

This finding, clearly gives strong support to the wages effect argument referred to above.

What (if anything) is different about the labour market?

The Productivity Commissi on adopts a neoclassical economic approach to analysing the employment of young people and the possible impact of changes to their wages. This rests predominantly on a theory of the relationship between demand and supply of labour where an increase in the price (wages) results in a fall in the demand (employment).

This is the dominant view of how all markets clear under competitive conditions.

This view is now so pervasive that it is worth noting that it is not as readily accepted in relation to the behaviour of labour markets.(27)

John Quiggin is one of a number of academic commentators who argue that features of the labour market make it less amenable to the application of standard neoclassical theory.(28)

The points he and others make are that even in simple commodity markets there are problems with the application of the neoclassical model due to information problems, and these problems are more complex for the labour market. This is not meant to say that standard neoclassical analysis is not appropriate for the labour market, rather that these analyses need to be complimented by more complex theories about its operation. Quiggin’s argument is similar to that described by a predecessor to the Productivity Commission, the Economic Planning and Advisory Commission (EPAC) and a substantial number of labour market economists. For example, in Future Labour Market Issues for Australia ,(29) EPAC argued:

• Labour is an input to production and the income from labour is also a source of demand for goods and servic es. Labour thus performs a dual role in the economy and for this reason governments have adopted income policies as a form of intervention so as to factor in macro economic effects.

• Labour is distinctive because of factors such as motivation, effort and skills. Indeed Dr David Peetz has recently reported on the importance of the incentive effects of minimum wages to labour.(30)

• The market for labour is not homogeneous. It can be characterised by many forms of natural and acquired ability. It is not static. Individuals also differ in their preferences for leisure/work and between different types of work. Labour is also divided r egionally because of the cost of moving house. There are thousands of sub-markets for labour with varying degrees of mobility between them.

• There is considerable uncertainty in the employment contract. Employees often have incomplete information about the enterprise’s prospects for continued operation. Employers have incomplete knowledge about a prospective employee’s commitment to stay in the job. There are also substantial costs for both sides in hiring and firing.

• There is also the question of bargaining power. Individuals do not have the resources or knowledge about prospective wages and conditions at an enterprise as does the employer. Employees often join unions to minimise some of these mobility costs and increase their bargaining power.

• Employment decisions may also include decisions about housing and training that involve longer-term costs. They may accumulate experience in one workplace but this may also involve a loss of flexibility to move to another occupation. These factors act to reduce the bargaining power of employees.

Other authors, some quite conservative by disposition, hold similar (though obviously not identical) views about the unique nature of labour markets to those expressed by Quiggin, Peetz and others.(31)

Junior pay: international arrangements

The following outline of international arrangements for setting youth rates is extracted from the Joint Governments’ Submission  (Chapter 2):

The OECD Employment Outlook for June 1998 indicates that 17 OECD countries apart from Australia currently have a statutory or national minimum wage which cuts across almost all sectors of the economy. In addition, the UK has also announced its intention to introduce a national minimum wage in April 1999. Sub-minimum rates for young workers are available in over half these OECD countries

 

The arrangements for discounting minimum wages vary from country to country. In the Netherlands, Belgium and Luxembourg, the adult rate is reduced successively for each year below 23, 21 and 18 years of age respectively. By comparison, French junior wage rates are only enforced for employees aged 17 or below with less than 6 months experience.

The setting of minimum wages for young workers has also changed over recent years in several countries. In 1998, Spain adopted a single statutory minimum wage with no distinction by age. In 1994, New Zealand introduced a minimum rate for workers aged less than 20 at 60 per cent of the adult minimum wage.

 

In the US, a youth rate was introduced at the Federal level in 1996, but it only applies for the first 90 consecutive calendar days of employment.

 

[A more useful explanation of the detail of the US minimum wage is given below in Chapter 3 of the Productivity Commission’s Report, Youth Wages and Employment ]:

Much of the literature on the effects of minimum wages on employment comes from the United States. Federal minimum wages are set in nominal terms by the US Congress at irregular intervals. So, for example, between January 1981 and April 1990, there was no increase in the minimum rate. The current Federal minimum wage is $US5.15 per hour and this applies to 90 per cent of non-supervisory and non-farm employees. As of August 1996, there is also a sub-minimum wage for employees under 20 years of age of $US4.25, although in practice this is not often used (Katz 1998). For employees who earn tips, the employers are only required to pay $US2.13 per hour, on the assumption that the addition of tips will bring the total payment up to the Federal minimum rate of $US5.15. Minimum wages are also set at the State level in the United States and in some States, these minimums are above the Federal levels. In these cases, the State minimum applies.

Returning to Chapter 2 of the Joint Governments’ Submission:

The UK Government recently decided to accept the recommendations of the UK Low Pay Commission to exclude 16 and 17 year olds from the proposed national hourly minimum wage. The UK Government also decided to introduce a youth development rate for 18-20 year olds, because of its concerns about the impact of the minimum wage on youth employment.

The Irish National Minimum Wage Commission has also recently recommended a separate minimum wage for under 18 year olds set at 70 per cent of the full time adult rate, and a training rate of 75, 80 and 90 per cent of the adult rate for job entrants without experience in their first three years of employment, regardless of age.

Main Provisions

The Explanatory Memorandum provides a detailed, accurate and useful synopsis of the proposed changes and there is no need, given the foregoing discussion, to repeat a ll that material here.

Schedule 1 makes amendments to the Workplace Relations Act 1996.

Items 1-4 make various amendments required to direct the AIRC’s attention to the importance of protecting the competitive position of young persons in the labour market when exercising its functions.

As noted, above, these provisions only direct that the AIRC take certain considerations into account. They do not and cannot direct the Commission what the outcome should be in any particular matter. The amendments must also stop short of directing the Commission as to how much weight it should give to the special circumstances of young people. There is also no attempt to direct the AIRC as to how it should balance this proposed requirement with other public interest provisions already in the Act (see above). Lastly, it is left to the Commission to decide what particular policies will protect the interests of young workers.

Item 5 amends paragraph 143(1C)(e) to require the Commission to ensure that in making any award, it must give consideration to inserting junior wage rates. It is this provision that appears to offer the prospect that there will be an increase in the proportion of young employees covered by junior rates. Whether there is such a spread of junior rates is, however, ultimately a matter for the AIRC.

Item 6 and 7 provide for the permanent exemption of junior rates in awards and certified agreements from the anti-discrimination provisions of the Workplace Relations Act. As noted above, there is presently statutory exemption to the relevant anti-discrimination provisions, but it is due to expire on 22 June 2000.(32)

The Government appears keen to make the present temporary exemption permanent as a matter of urgency. As noted above, the AIRC is currently conducting a thorough inquiry into the feasibility of replacing junior rates with non-discriminatory alternatives, pursuant to section 120B of the Workplace Relations Act. That Inquiry is due to report to Minister Reith no later than 22 June 1999, ie 12 months before the present exemption expires or requires further extension.

Schedule 2 deals with proposed amendments to the Workplace Relations and Other Legislation Amendment Act 1996 .

These changes relate to the award simplification process and have a similar intent and operative effect to those amendments being proposed in relation to the Workplace Relations Act.

Endnotes

 

1. ABS, Labour Force (Preliminary), Catalogue No.6202, 12 November 1998, p 10. 

2. The so called ‘Five Economist’s Plan’ is a recent example of a policy prescription that seeks to incorporate a range of theoretical approaches to the development of policy. Professor Peter Dawkins, Professor John Freebairn, Professor Ross Garnaut, Dr Michael Keating and Mr Chris Richardson, ‘Dear John: how to create more jobs’, The Australian , 26 October 1998, p 13. Also Ross Gittins, ‘In the five economist’s plan, the compromise is golden’, The Age , 7 November 1998, B3 for a discussion of the theoretical cross currents.

3.  Sydney Morning Herald , 27 November 1998, p 1.

4. Ross Gittins, ‘Why jobs myth persists’, Sydney Morning Herald , 4 February 1998, p. 17.

5. Ibid.

6. Refer to the Appendices for long-term trends in youth unemployment.

7. ABS, Labour Force Statistics on Microfiche , November 1998.

8.  R v Commonwealth Conciliation and Arbitration Commission; Ex parte Amalgamated Engineering Union (1968) 118 CLR 219.

9.  www.dwrsb.gov.au.index1.htm

10. page 101.

11.  Principle 3: Previous National Wage Case Increases in Safety Net Review (Wages), AIRC, April 1998, Print Q1998, p. 64.

12.  AIRC, Print H9100.

13.  The Australian Vocational Certificate Training System, Report of the Employment and Skills Formation Council to the National Board of Employment Education and Training , 1992.

14. Ibid., p. 61.

15. Ibid., p. 63.

16.  See Chapter 2 of the Joint Governments' Submission to the Junior Rates Inquiry http://www.dwrsb.gov.au.index1.htm.

17. Ibid., p 10.

18. Ibid., p 7.

19.  Print N4645, September 1996, p.7.

20. Refer: Marco Bini, DPL, Bills Digest 89/1994 , Industrial Relations Amendment Bill No. 2 1994.

21. Except where the AIRC decides on a case by case basis that the paragraph should apply.

22.  ‘Youth Employment and Junior Rates’,  ACCI Review, October 1998.

23. ACTU Submission to Junior Rates Inquiry, C. No. 33985 of 1998. ACTU, written submission, November 1998.

24. op cit., p 10.

25. 1998, (http://pc.gov.au/research/other /youthemp/index.html).

26. Productivity Commission, Youth Wages and Employment , pp xi - xiii.

27. Lester C Thurow, Dangerous Currents: The State of Economics , 1983, pp. 173-215.

28.  Why Isn’t the Market for Labour like the Market for Oranges, mimeo, Centre for Economic Policy Research, ANU, 1995.

29. Commission Paper No.12, 1996.

30.  ‘Minimum wages and jobs’, The Australian Financial Review, 5 February 1998.

31. See P. P. McGuinness, ‘Labour, Discrimination, Employment’, Student Economic Briefs 1985 , Australian Financial Review, 1985, pp 84-92. Refer also: Report of the Committee of Review, Australian Industrial Relations Law and Systems (Hancock Report), Volume 2, April 1985; and Keith Whitfield, The Australian Labour Market , 1987, esp pp. 36-61.

32. Although the AIRC may, noted above, extend it on a case by case basis.

 

 

 

RATIO OF F/T UNEMPLOYMENT RATE FOR 15-19 YEAR OLDS  TO UNEMPLOYMENT RATE FOR ALL PERSONS, SEASONAL LY ADJUSTED SERIES

 

Unemployment Rate (%), s.a.

 

Ratio full-time une rate

 

Aged 15-19 looking for full-time work

Total persons

 

for youth to une rate total persons

Aug-79

19.5

6.1

 

3.2

Aug-80

18.8

6.2

 

3.0

Aug-81

16.1

5.8

 

2.8

Aug-82

19.1

7.0

 

2.7

Aug-83

26.9

10.2

 

2.6

Aug-84

25.0

8.8

 

2.8

Aug-85

21.6

8.2

 

2.6

Aug-86

21.7

8.3

 

2.6

Aug-87

22.3

8.1

 

2.8

Aug-88

17.8

7.1

 

2.5

Aug-89

14.9

6.0

 

2.5

Aug-90

19.6

7.2

 

2.7

Aug-91

28.4

9.8

 

2.9

Aug-92

33.9

10.9

 

3.1

Aug-93

32.6

11.1

 

2.9

Aug-94

28.3

9.5

 

3.0

Aug-95

28.4

8.3

 

3.4

Aug-96

28.0

8.7

 

3.2

Aug-97

27.6

8.7

 

3.2

Aug-98

28.2

8.1

 

3.5

 

 

image

 

RATIO OF UNEMPLOYMENT RATE FOR 15-19 YEAR OLDS TO UNEMPLOYMENT RATE FOR ALL PERSONS, ORIGINAL SERIES

 

Unemployment Rate (%), origi nal

 

Ratio of une rate for youth

 

Aged 15-19

  Total persons

 

to une rate total persons

Aug-66

3.2

1.6

 

2.0

Aug-67

3.3

1.7

 

1.9

Aug-68

3.4

1.6

 

2.1

Aug-69

2.9

1.5

 

1.9

Aug-70

3.2

1.4

 

2.3

Aug-71

3.7

1.7

 

2.2

Aug-72

5.8

2.5

 

2.3

Aug-73

4.7

1.8

 

2.6

Aug-74

5.8

2.4

 

2.4

Aug-75

12.9

4.6

 

2.8

Aug-76

14.2

4.7

 

3.0

Aug-77

18.0

5.7

 

3.2

Aug-78

16.8

6.2

 

2.7

Aug-79

17.3

5.8

 

3.0

Aug-80

16.6

5.9

 

2.8

Aug-81

13.9

5.6

 

2.5

Aug-82

16.6

6.7

 

2.5

Aug-83

22.6

9.9

 

2.3

Aug-84

20.9

8.5

 

2.5

Aug-85

18.2

7.9

 

2.3

Aug-86

19.1

8.0

 

2.4

Aug-87

18.7

7.8

 

2.4

Aug-88

15.5

6.8

 

2.3

Aug-89

13.7

5.7

 

2.4

Aug-90

16.5

7.0

 

2.4

Aug-91

21.0

9.5

 

2.2

Aug-92

25.0

10.5

 

2.4

Aug-93

23.0

10.7

 

2.1

Aug-94

20.3

9.2

 

2.2

Aug-95

20.0

8.1

 

2.5

Aug-96

19.5

8.5

 

2.3

Aug-97

19.3

8.4

 

2.3

Aug-98

18.8

7.9

 

2.4

 

image

image

Contact Officer

Steve O'Neil, Tony Kryger, Bob Bennett

2 December 1998

Bills Digest S ervice

Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament.  While great care is taken to ensure that the paper is accurate and balanced, the paper is written using in formation publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.