Academic journal article The Economic and Labour Relations Review : ELRR

Determining the Minimum Wage: A Household Expenditure Approach

Academic journal article The Economic and Labour Relations Review : ELRR

Determining the Minimum Wage: A Household Expenditure Approach

Article excerpt

1. Introduction

An article in a recent issue of this journal examined the evolution of minimum wage determination and minimum wage concepts in Australia (Plowman 1995). That article highlighted important criteria and developments in wage determination designed to protect low income earners. It concluded that 'finding the appropriate level of minimum wages has required an assessment of both needs and economic capacity. Neither of these concepts has been easy to define and has led to much fruitless searching for formulae ' (p. 286). The paper further concluded that in its most recent guise, that of the Arbitrated Safety Net, the minimum wage had become a poorly defined concept lacking any clear criteria and determined on the basis of guesswork. Such a formulation would 'invite further examination of the concept and rationale of minimum wage determination' (p. 287).

This article builds on these findings and proposes a method for determining minimum wage rates. The need for minimum wage formulae which are industrially acceptable, economical feasible and administratively viable is heightened at a time when the Australian Industrial Relations Commission is engaged in a review of the Living Wage.

The paper is presented in a number of sections. The next section defines our meaning of the term 'minimum wage' and highlights some of the key criteria imported from the previously cited work. The third section gives details of the statistical analysis employed in the paper. In doing so it analyses the data sample and expenditure categories contained in the 1993/94 Household Expenditure Survey; provides the basis upon which different expenditure categories were included or excluded in our analysis; gives details of the estimation model used; and reports on other salient features of the analysis. Section 4 presents the results of our findings in a way which allows the relative effects of the various characteristics analysed to be clearly seen Findings on the following are presented: average expenditure per week for adult labourers; the impact of age on expenditure; the effect of occupation on expenditure; the effect of the principal source of income; the effect of employment status; the effect of household type; and the effect of household size. The final section is by way of summary and conclusion.

2. Definition and Criteria

We have defined the minimum wage to be 'the lowest weekly wage or wage rate payable to an able-bodied full-time employee without regard to the industry or calling in which that employee is employed and having regard to the reasonable needs of the employee in the Australian community'. This definition accords with industrial tribunal practice over many years.

Apart from pointing to 'reasonable needs' the definition, of itself, does not indicate the way in which the minimum wage should be determined. The criteria employed in this analysis is based on the earlier reported historical analysis. This suggested that the application of some 'needs' concept for reasonable living should be limited to the needs of an individual rather than the needs of a family. It was the role of the social welfare system to augment family income on the basis of actual, rather than hypothesised, needs. The analysis also pointed to the desirability of using gender inclusive criteria and the difficulty in formulating acceptable productivity-based criteria. Our analysis involves using the Australian Bureau of Statistics' Household Expenditure Survey to determine what is needed for 'reasonable living' for labourers without dependents in the Australian community.

3. The Statistical Analysis

In the past, synthetic methods have been used to construct what were deemed to be appropriate weekly expenditure amounts for classes of workers under consideration. Such methods necessarily involve both explicit and implicit value judgments, running the risk of losing touch with the realities of ordinary Australian life and the changing patterns of consumption. …

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