The lowest earners in Australia are pretty much divided into the following categories:
– those on the State allowance
– those on the minimum wage with conditions as determined by the State (Federal or State)
– those working for cash in the so called black economy or working in workplaces that are non-compliant to minimal condition legislation
– those who have slipped through the safety net entirely

These categories are not entirely seperate, people can and do belong in more than one category which makes things a little complicated.

However, I’m pretty much only interested in the first two categories especially wrt how the allowance and minimum wage is determined as I believe that the majority of low income earners fall into those categories. Also, I’m interested as to whether people in those two categories can be considered poor and if so at what proportion and why.

This is not to say that cash workers and the fallen are not poor – in fact – they are likely to be so, but the issues there are more to do with bringing them back into the system and the effectiveness of our bureaucracy and or legal system.

In the our present system, in order to encourage people to work, the minimum wage is set higher than the State allowance for those on unemployment benefits while others such as pensioners who are deemed unable to work have a higher allowance. This has now been expanded to include single mothers and disabled capable of some work so that their benefits are now cut down. While I have a problem with who should be considered on the pension or unemployed, I have no basic problem with the system.

The current method the minimum wage is set appears to be based on submissions to the independent AIRC from employees, employers, unions, social work organisations and other interested parties including the government. The AIRC then makes a decision as to whether to approve the increase or not. Howard’s new reform will create something called the Australian Fair Pay Commission which will set the minimum wage based on parameters defined in legislation. The details of these parameters are still unclear and I’m looking forward to hearing them.

Currently, in Victoria (which had handed over its most of its IR responsibilities to the Commonwealth) the AIRC makes its minimum wage increase decisions on the following parameters:
(a) the needs of workers and their families (taking into account the general level of wages in Victoria), the cost of living, social security benefits and the relative living standards of other social groups; and
(b) economic factors, including the requirements of economic development, levels of productivity and the desirability attaining and maintaining a high level of employment.

I find the “relative living standards of other social groups” clause quite interesting and wonder how much weight that is actually given during full bench considerations. Anyway, an example of the way the full bench of the AIRC bases its decisions can be seen here.

The way State allowances are set is a little less transparent. These are set every budget of course but I think the process of doing this involves consultations with and submissions from welfare groups and research bodies.

Regardless, the way the minimum wage and State allowances are set do go through a reasonably vigorous process with the interests of all groups (including the politicians) taken into consideration. Now whether this results in sufficient income that our lowest earners are poor or not is still in doubt because with business groups usually saying no and welfare groups usually saying yes. As for those on the minimum wage or state allowances, it would seem reasonable to assume that for them a little bit more money never goes astray.

I’ve only just started to read a little more about how we structure this so my own analysis is immature but I’ll give it a shot anyway.

I think that our welfare system assumes a level of minimal life-skill competency and responsibility on the part of the receipient. It assumes an ability to budget, to make reasonable choices in so far as looking after oneself, to postpone gratification, to know what government services are available and an ability to represent oneself to those services. I think that the State is right to make these assumptions so long as it also recognises that many on welfare are not competent to that level. For those who are not lifeskill competent, my instinctive feel is that any increased amount of allowance will never be enough. Hence my argument that this sector of the lower income earners should be taken out of the welfare income argument and placed into a health and education context where either greater intervention is mandated and expected (along with associated problems due to trespass of personal rights and freedoms) or we as a society agree to wear the cost of a true underclass.

The minimum wage level is something else again. It seems to me that the current process is actually quite good with welfare groups, unions and business groups all presenting their arguments to an independent body who is tasked with the difficult job of balancing both sides. Once again however, I believe that focussing on the minimum wage level conflates poverty with minimum wage while obscuring issues such as individual factors and access to opportunity. So long as the State can ensure minimum wage does not translate into poverty (which I believe it does at this time) and ensure equality of opportunity, then income inequality is ok.

There are standard neo-con economic arguments against any minimum wage setting as it can create inflation, it can reduce employment and it is a purely private matter between two individuals as to how much one should be paid or not. These days, i’m tending to think those arguments hold little water for the absolute bottom of the market wrt income. But that’s another entry for a later time.

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