The economics of Christmas

In October Australia celebrated the 100th Anniversary of the “Harvester Judgment”, the ruling by the then Melbourne-based Arbitration Court that fair and reasonable remuneration must be paid to employees. Yet in 2007, “fair and reasonable” does not necessarily equate to “reasonable comfort” or even “financial security and independence”.

In 1906 the Protectionist Party and Australian Labor Party attempted to introduce guaranteed fair and reasonable wages and working conditions to workers. The decision was made in the Excise Tariff (Agricultural Machinery) Act, which stated that an excise on locally made machinery would be waived if workers were paid “fair and reasonable” wages.

The resulting Harvester Judgment came about on November 8, 1907 after Melbourne-based agricultural machinery manufacturer The Harvester Company applied for a remission of the excise. The Arbitration Court’s president, Henry Bournes Higgins, ruled against the company. He determined that fair and reasonable remuneration must be enough to support a wage earner in reasonable comfort, and therefore set a figure of £2/2/-, or seven shillings a day, as a minimum wage.

Fast forward to 2007. When most people think of “reasonable comfort” at Christmas, “good food” is generally one of the first things that pops into our heads, followed quickly in no set order by “time with family”, “presents”, “cricket on the beach” and “afternoon siesta”. However as we are painfully reminded each festive season, for far too many people the word Christmas evokes thoughts of “uncertainty”, “pressure” and “debt”. The push to spend our hard earned income on increasingly expensive products is often too great, leaving many of those already struggling on a minimum wage facing even more dire circumstances.

“Low paid workers live at the margin all of the time, so if you come to a time of year or life where there’s an excess demand, there’s a greater pressure on you to participate,” says Mr Colin Fenwick, the Director of the University of Melbourne’s Centre for Employment and Labour Relations Law.

“The reality is that people on low pay, people only receiving award conditions (or “Fair Pay” conditions as they’re now called) are not going ahead as fast as other people - they aren’t keeping up with inflation - and that means they just don’t have as much money to get by, in an environment where housing costs continue to go up where consumables are going up anyway.”

Dr John Howe, also working at the Centre, says Christmas provides an immediate pressure to all wage earners. “There’s certainly a pressure to spend more at a particular time like Christmas, and people do seem to spend more.”

The Australian Fair Pay Commission - previously the Industrial Relations Commission - is the independent, statutory body responsible for setting and adjusting Federal Minimum Wages “in a bid to promote the economic prosperity of the people of Australia”, according to the website. In its most recent decision in July, all workers earning less than $700 a week had their weekly pay increased by just over $10. The average Fair Minimum Wage is around $522.

But what is fair? “The real problem is that there is no explicit definition of fairness in the legislation,” says Mr Fenwick. “So there’s only an implicit definition of fairness, and the implicit definition of fairness is … you’ve got a job.”

Dr Howe takes the definition one step further. “The last Liberal government’s argument, based around WorkChoices version one before the introduction of the fairness test, has been that the system is fair because it creates jobs. But if your definition of fairness is a system which ensures that as many people as possible in our society have reasonable living standards then I don’t think it’s fair.”

The problem both Mr Fenwick and Dr Howe see is that legislation like WorkChoices has dramatically altered how people on low pay are treated. The Howard Government’s widely publicised legislation gave employers the ability to remove working conditions Mr Fenwick sees as very important to people on award wages, such as shift loading, because “it significantly affects people’s take home pay”.

He says the backlash resulted in the introduction of the fairness test of May this year, meaning for many award-wage earners, these conditions cannot be taken away unless something is given in return.

“A lot of what’s going to be given in return isn’t going to be what people want. Sure, there will be people who will say ‘I will give up my leave loading in return for the right to be a little bit more flexible in my working time, to drop off kids at school etc’. But in effect workers have to buy their own work-family balance by trading away their leave or leave loading.”

It is clear that the original spirit of the Harvester judgment - that governments can and will set a minimum standard of living for workers - is now, if not dead, then well beaten. While the basic argument has always been whether wages need to be set at a level that reflects the needs of the worker, or the capacity of the enterprise to pay, “both sides of politics now accept that such model is uneconomic” says Howe

However the tools now in place to assist the government in helping the low paid are just not as effective. According to Fenwick, “The Fair Pay Commission is in the same position the Industrial Relations Commission was formerly in, which is that it only has one tool to improve the circumstances of the low paid, and that is the wage rise.”

“The burning issue is the impact of the wage rise in net terms for the low paid, because the low paid are also receiving a variety of social security payments that are means tested. This is where you get the circumstance where the one dollar extra in the pay packet awarded by the FPC gets you very little in net terms by the time there’s an offset in your family payments of whatever other social security benefit you’re getting, plus a slight increase in your tax.”

Professor Kevin Davis, the Director of the Melbourne Centre for Financial Studies, is another who is concerned with the increased financial risk faced by people. While acknowledging that financial deregulation has provided substantial and widespread economic benefits to people, “… many individuals do not properly understand or appreciate the risks, costs or rewards associated with the range of financial products available and marketed to them”.

“Government policies are causing or providing incentives for individuals to take on increased financial risk.”

And this is the other key element of WorkChoices and the myriad promises of tax cuts for all workers - that in the end, it’s all very much personal choice. “It’s very difficult to argue against individual choice, but I think what has to be examined more closely is whether people are being given real choice or not. Because we don’t seem to want to have a real welfare state, we’ve wanted to move away from a concept of entitlement to support, therefore we’ve introduced things like the concept of mutual obligation, things like the Welfare to Work initiatives,” says Colin Fenwick.

Dr Howe agrees. “Our social security system has only ever been about poverty alleviation, and whether you can just identify some sort of monetary level at which poverty kicks in. All we’ve ever tried to do is give people enough to keep them right off the very bottom, and that’s counted as a win.”

Perhaps the most pertinent element to consider at Christmas then is just what we are spending our hard earned on. It’s an argument borne out by people such as Professor Clive Hamilton in his 2006 publication Affluenza. For him, Australia is not so much facing a problem of level of income - despite the protestations of the low paid - but facing a much bigger problem of what it is spent on.

According to Dr Howe: “There’s been this whole great growth in materialism over the last decade and that’s the problem that needs to be addressed. People are spending all their money on material goods - plasma TVs - and their quality of life is declining, not withstanding that they have those material goods.”

Mr Fenwick and Dr Howe are both involved in The Social Justice Initiative, a University of Melbourne funded inter-disciplinary research program which examines, among other things, welfare and work.