Research key to balancing pay equity with jobs growth

The Australian Fair Pay Commission made its final decision on minimum wages in July, when it was disbanded and replaced by the minimum wage panel of Fair Work Australia. The government only recently announced the three part-time members of the panel, even though its first determination is due in about six months. By contrast, the commission took at least nine months to work through its program of consultations, submissions and research.

The commission was established as part of the Howard government’s WorkChoices reforms and was modelled on the British Low Pay Commission, which operates in a non-judicial setting, and is informed by extensive consultation and independent research. The intention was that Australia move away from the traditional, quasi-judicial approach to minimum wage setting.

At the time of its creation, the Fair Pay Commission was criticised by the right and left of Australian politics. Those on the right were dismayed by the inclusion of a reference to safety nets for the low paid. Their hope was that minimum wage determination would focus exclusively on the employment implications for low-paid workers, and leave distributive issues to the income tax and social security systems.

Those on the left were appalled by the lack of any reference to living standards of the low paid in the new Workplace Relations Act. This expunged the influence of the original Harvester judgment and Justice Higgins’ notion of the ‘basic living wage’, a traditional rallying cry for the labour movement in Australia.

For my part, I felt that minimum wage setting could be improved if the process drew more broadly on research, consultations and submissions, and relied less on formal procedures of a forensic nature. This was especially true given the commission’s brief to balance the employment effects of minimum wage adjustments with its role in providing a safety net for low-paid workers.

As a quasi-judicial body, the former Australian Industrial Relations Commission could not inform itself independently of formal hearings for fear of undermining its impartiality. The only research it ever saw was submitted as evidence and then subjected to cross-examination in open court.

The Fair Pay Commission, on the other hand, was set up to pursue an ‘inquisitorial’ rather than a quasi-judicial process, allowing the commission to inform itself in whatever way it saw fit.

Some who lament the passing of the Fair Pay Commission regret that it got caught up in the furore over WorkChoices. Contrary to wilder claims, there was never any suggestion to me that undermining Australia’s system of minimum wages was its tacit brief. The aim was to change the process by which minimum wages were determined and to emphasise the consequences for the unemployed and low paid of raising minimum wages too quickly or by too much.

The commission took seriously the injunction familiar from medical practice, ‘Above all, do no harm’. We were well aware that raising minimum wages too high could harm more people than it helped. As an economic liberal, I kept my eyes peeled for unintended harmful consequences of putatively welfare-enhancing state intervention.

One of the grounds for objection to the Fair Pay Commission by political opponents of the Howard government was that it lacked judicial independence and could therefore be swayed by the government of the day. Conspiracy theorists on talkback radio suggested I had ‘secret instructions’ from John Howard to cut minimum wages.

I never received explicit or implicit directions from the Howard government, or from the Rudd Government for that matter, throughout my tenure. The commission raised minimum wages on three occasions during its short life because, on the balance of the evidence, we believed this was warranted.

While the powers are available to it, there are early indications that Fair Work Australia will restrict public consultations to two hearings, one in Sydney and one in Melbourne. Moreover, submissions will be restricted to the peak representatives of the parties rather than widened to include any interested member of the public. I hope these early reports are wrong and that the panel consults broadly and meets face to face the people most affected by its decisions.

This was perhaps the most engaging aspect of my time as chairman of the commission and will remain with me long after the memory of research results has faded. To ground a new economic institution on the principles of openness, transparency and accountability was a rare privilege.

Ian Harper is a director of Access Economics. From December 2005 to July 2009, he was part-time chairman of the Australian Fair Pay Commission. His account of this time is in The Centre for Independent Studies journal Policy.