Annual wage review 2014/15. Submission to Fair Work Australia

Transcription

1 Annual wage review 2014/15 Submission to Fair Work Australia Prepared by the National Retail Association March

2 Contents About the submitter... 3 Position summary... 3 Rationale... 3 The long-term performance of the Australian retail sector... 5 Contact information

3 About the submitter 1. The National Retail Association (NRA) is Australia s largest and most representative retail industry organisation, representing more than 19,000 stores and outlets. This membership base includes the majority of national retail chains, as well as independent retailers, franchisees and other service sector employers. Members are drawn from all sub-categories of retail including fashion, groceries, department stores, home wares, hardware, fast food, cafes and personal services like hairdressing and beauty. The NRA has represented the interests of retailers and the broader service sector for almost 100 years. Its aim is to help Australian retail businesses grow. Position summary 2. The National Retail association, following consultation with its members and the wider retail industry, recommends an increase in the minimum wage of $9.60 per week, based on a 38-hour working week. This would take the minimum wage from $ to $ This is an increase of 1.5% for those on the minimum wage. This figure is close to the inflation rate, ensuring the spending power of minimum wage earners is not eroded but hopefully ensuring that as many new jobs as possible are able to be created in the retail sector for the unemployed in these testing economic times. 3. This recommendation also takes into account other impacts on the spending power of minimum wage earners over the last 12 months, the capacity of businesses to pay for increased labour costs in the national retail sector, and the unavoidable trade-off between jobs and increases that are not strongly linked to productivity or efficiency gains. As noted in other submissions, there has been zero or little demonstrated productivity gain in the retail sector over the last 12 months. In these circumstances, we believe any higher increase will cause significant financial hardship for businesses, add to inflationary pressures within the Australian economy, and inhibit the ability of the sector to create as many new jobs as is possible. 4. We further submit that any increases in the national minimum wage should be applied as a nominal dollar increase across all levels of awards consistent with the majority of past practice. If a percentage increase is applied, the average impact of that increase across levels should be no more than $9.60 for a 38-hour week. Rationale 5. In reaching the recommended increase outlined above, the NRA has given careful consideration to a number of factors affecting employers, particularly those in the retail industry, and also the economic conditions affecting wage earners in the Australian economy today. The NRA strongly recommends that the Minimum Wage Panel also take account of the following factors: 3

4 6. The high unemployment rate The most recent unemployment rate was 6.3%. This figure is comparatively higher than the historical average, which is around 4%. A significant increase in the minimum wage would put pressure on employment prospects, for those currently in the workforce, on top of job seekers looking for fulltime and part-time employment. A realistic increase of $9.60 per week is economically viable for businesses to have the capacity to retain current employees and provides flexibility for further employment based on demand rather than downsizing. 7. Additional spending power Last year, the Commission indicated it was unable to consider the positive impact on wage earners spending power of the removal of the Carbon Tax, because this measure had not passed the Parliament at that stage. The tax has now been removed, but the compensation introduced along with it remains in place. The Gillard Government valued this compensation at $10.10 per household per week on average, and the Abbott Government has used a similar figure of $500 per household per year. This is additional money available to minimum wage earners compared with 12 months ago, and it should be taken into consideration as part of any calculations designed to preserve spending power. 8. Inflation Last December s inflation rate of 1.7% shows currently a modest increase in the cost of living. For the coming financial year, the RBA forecasts that the inflation rate is likely to remain below 2%. This is a low inflation environment which means that the cost of living is increasing at a relatively slow rate, The NRA s recommended increase of $9.60 is intended to maintain spending power and standard of living. 9. General Business Confidence The recent quarterly ACCI-Westpac Survey of Industrial Trends suggests employers are still hesitant to employ additional staff despite a moderate increase in business confidence. This was illustrated by the March quarter figures demonstrating more employers (a net negative of 12%) were hiring less people but expecting more productivity and longer hours from existing staff (a net positive of 14%). Simply put, despite the increase in demand, employers do not want to take a risk on hiring new employees. A significant increase in the minimum wage would further exacerbate this current trend. While the survey found tension in the business environment is lifting with certain sectors such as manufacturing experiencing promising signs of recovery (net positive of 8 percent), this was still down compared with the December-quarter survey. We urge the Commission to consider these results, and set a minimum wage increase that is not counterproductive to the recovery of business confidence. 4

5 GrowthRate (%) The long-term performance of the Australian retail sector 10. The long-term performance of the Australian retail sector suggests that business operators have faced incredibly challenging economic conditions for a protractive period of time. For the past ten years, a clear, downward trend has become evident in the retail trade turnover data, released by the Australian Bureau of Statistics. Although strong growth was experienced throughout 2006 and 2007, the Australian Retail industry has had sustained periods of poor sales performance, only recently returning to above average sales growth. However, analysis conducted by the National Retail Association indicates that this trend may not continue into 2015, with the possibility of a return to below average sales growth. -on- Growth - Australian Retail Growth Rate 10- Average (4.3%) Linear (Growth Rate) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: ABS Retail Trade, Australia, Jan The downward trend in retail trade turnover is reflected in a number of category subdivisions, which are key to the Australian Retail industry. In particular, those businesses that are largely dependent on discretionary expenditure, have experienced a clear downward trend in sales growth across the past ten years. While recent retail trade turnover data suggests short-term improvement, especially for household goods retailing (See below), it is uncertain whether this will develop into a sustained growth trend through Regardless, most categories in the Australian Retail industry are currently experiencing significant challenges in achieving sales growth that exceeds the 10-year average. 5

6 Growth Rate (%) Growth Rate (%) -on- Growth - Household Goods Retailing Growth Rate 10- Average (3.3%) Linear (Growth Rate) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Source: ABS Retail Trade, Australia, Jan At present, the only Retail category experiencing a positive, long-term trend in sales growth is cafes, restaurants and takeaway food services. With a 10-year average growth rate of 5.9%, this category experienced double-digit growth, at multiple time points, across the past five years, relative to other industries, which have been growing at an average of less than 3.5%. -on- Growth - Cafes, Restaurants & Takeaway Growth Rate 10- Average (5.9%) Linear (Growth Rate) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Source: ABS Retail Trade, Australia, Jan Research conducted by the National Retail Association also indicates that, relative to historical standards, consumer spending is weak. Indeed, as a result of reduced consumer confidence, the viability of many retail businesses have been impacted by a decline in consumer demand, as well as increases in operating costs including labour, rents, and utilities. 14. The most recent business data available from the Australian Bureau of Statistics indicates that 3.1% of retail businesses ceased trading in the twelve months to June 2013, with all of these closures occurring in small business (1-19 employees) Counts of Australian Businesses, including Entries and Exits, Jun 2009 to June

7 Employment Growth (%) 15. Service industry employment now dominates the Australian economy: In % of all employed persons in Australia worked in production industries. Today 77% of all employment is attributable to the service sector, rising from 54% in In the 1960s, Australia was evolving from a nation of largely primary industries of sheep, cattle and wheat to one of manufacturing. By the late 1960s refrigerators, washing machines, vacuum cleaners and cars had become increasingly available to Australians. This is reflected in the industries which employed most people in August 1966; Manufacturing (26%) and Wholesale and retail trade (21%). In August 2011, manufacturing was a relatively much smaller component of the economy than it was in the past (accounting for just 8% of employed people). The Health care and social assistance industry was the largest industry (employing 12%), followed by Retail trade (11%) and Construction (9%), while Agriculture and Mining only accounted for 3% and 2% respectively of all employed people. The growth in some service industries also reflected a changing Australia; some 77% more people worked in the child care industry compared with just 10 years ago. [ABS Australian Social Trends, December 2011] 16. The Australian Retail industry, however, has experienced a sustained, long-term decline in employment growth across the past ten years. Analysis conducted by the National Retail Association reveals a 10-year average growth rate of 1.2%, which ranks the Retail industry as one of the lowest performing sectors in terms of employment growth, and well below the national average of 2.6% for all other industries. While the sheer size of the retail workforce means that any growth means a significant increase in new jobs, the declining rate of growth should be a significant concern for policy makers. Employment Growth - Australian Retail Growth Rate 10- Average (1.2%) Linear (Growth Rate) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Labour Force, Australia, Detailed, Quarterly, Feb

8 Full Time Employment ('000s) Part Time Employment ('000s) 17. Youth employment is a specific issue that is particularly relevant to the Australian retail industry, given that 20% of young Australians, between the ages of 15 and 24 are employed in this particular sector of the economy 2. Across the past five years ( ), there has been a clear downward trend in full time employment for young workers, with the number of full time positions held by youth in the retail industry decreasing, on average, by 3.4% each quarter, across this time period. Conversely, during the same five year period, there has been a clear trend for an increase in part time employment for young employees, with the average quarterly growth rate in part time positions being 1.1%. Essentially, the data suggests that in terms of youth employment, within the Australian retail industry, a clear five-year trend exists, with the number of young people employed in full time positions decreasing, while the number of part time positions are increasing. In the retail sector, which has traditionally been a critical source of employment for younger workers, these trends are very important to consider when setting minimum wages. This is especially true in the year after the Fair Work Commission has effectively dismantled a tier of the retail junior wage system. Youth Employment (15-24)- Australian Retail Full Time Part Time Linear (Full Time ) Linear (Part Time) Labour Force, Australia, Detailed, Quarterly, Feb Labour Force, Australia 8

9 Unemployment Rate 17. Unemployment statistics for the Australian Retail industry also suggest a linear trend towards an increased number of retail workers that are unemployed. Analysis conducted by the National Retail Association indicates that across the past ten years, the Retail industry has had the fourth highest average unemployment rate, at 3.8%, which is higher than the national average for all other industries (3.1%) 3. This evidence, combined with a decline in consumer spending, increase in operating costs, and a contracting rate of employment growth, highlights the sustained economic pressure that has been placed on retail businesses in the past ten years. 7.0% 6.0% Unemployment Rate - Australian Retail Unemployment Rate 10- Average (3.8%) Linear (Unemployment Rate) 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Labour Force, Australia, Detailed, Quarterly, Feb These challenging trends for the industry are partially attributable to the structural changes and pressures being experienced in the Australian retail sector. Many of these structural changes have been well-documented in previous reports by the Productivity Commission, such as the Economic Structure and Performance of the Australian Retail Industry (2011) and Relative Costs of Doing Business in Australia: Retail Trade (2014). 19. For example, in recent years, the Australian Retail industry has also experienced an increased level of competition from online, overseas-based retail businesses, which operate in lowwage economies. These circumstances make it extremely difficult for business owners to pass on any additional wage cost to customers, particularly in an environment where heavy discounting has become the norm in recent years. 20. However, the National Retail Association strongly submits that these trends are also significantly attributable to the fact that Australia has a workplace relations regime designed for an older economy, with an emphasis on manufacturing and primary industries, rather than being suitably designed and sufficiently flexible for the modern services economy. 3 The industry unemployment rate was calculated using unemployed people who were employed in an identified industry within the past two years. It does not include people that have been unemployed for more than two years, or have never been in the labour market. As a result, within industry unemployment figures will be lower than the labour force-wide unemployment rate. 9

10 21. In our submission the Australian workplace relations system remains shaped by the traditional circumstances, union relevance, and working arrangements associated with the manufacturing industry. The Fair Work Act (2009) (Cth) needs to be modernised to reflect the circumstances of the service sector which invariably operates across all seven days of the week and across a spread of hours that extends from 12 to 16 hours a day or more. 22. Additionally, unlike production or manufacturing, demand is considerably more dynamic where operational requirements are significantly influenced by fluctuations in demand, changing consumer preferences and seasonal factors. Finally employment is geared towards the young and dominated by casual engagements. The service sector deserves and needs access to flexible forms of labour and employment arrangements that reflects its operational environment. The Act should be designed accordingly. 23. Given all of the above information, the NRA strongly urges the Commission to make a minimum wage decision that does not heighten the advantage already enjoyed by overseas businesses in what is rapidly becoming a global retail market. Any action that would dramatically grow the gap between domestic and international wage levels will indisputably result in the loss of jobs for Australians. This is not to say that Australia should not have a strong minimum wage regime. Rather, the NRA argues that more than ever Australian businesses and the staff who rely on them for their livelihoods are competing with overseas workers. Any wage increase that exceeds the levels achieved in competitor markets will only serve to reduce the competitiveness of local businesses. And that outcome can only be bad for workers in the long run. Contact information National Retail Association Chief Executive Officer Trevor Evans info@nra.net.au 10