Wage determination in australia

Under competitive economic terms, the price of labour should be determined by the market forces of demand and supply. However, the labour market is hardly competitive, and this calls for other mechanisms of determining appropriate wage rates that do not victimise or negatively exploit employees. Most countries set minimum wages for the purpose of protecting employees from exploitation and in Australia, the body responsible for setting and annually reviewing the national minimum wage is the Fair Works Commission, which derives its mandate from the Fair Works Act of 2009. This paper therefore analyses how wages are determined in Australia and the role that industrial relations entities play in this determination of wages. The Fair Work Act, 2009 and the Minimum Wage The understanding of Australia’s wage system is not complete without the comprehension of the minimum wage system and the role that the Fair Work Commission through the Fair Work Act, 2009 plays.

The National Employment Standards include some factors and considerations such as maximum weekly working hours, flexibility in working schedule, parental and annual leave entitlement, public holidays and fair work statement. In essence, the commission must consider these employment standards in setting up the national minimum wage for the purposes of ensuring that every employee is protected from financial exploitation and that the minimum wage sustains the basic needs of individuals. Currently, the 2019 national minimum hourly wage stands at $19. For a week with 38 hours, this minimum wage translates to $740. This minimum wage came to effect on 1st of July 2019 and was a rise from the initial minimum wage of $18. This is because every award category has different sets of entitlement and hence different minimum wage as bargained for by the trade union and the employers.

It is therefore imperative that an employer understands not only the conditions but also the different award categories of the employees. Under this system, the first consideration is the industry under which an employee operates. Different industries in Australia have different minimum wages that should however not be below the national minimum wage set by the Fair Work Commission. This is in line with the fact that some industries are more demanding in terms of educational qualification amongst other factors and also produce much more in terms of income hence necessitating higher pay compared to others (Oliver, 2016). Occupations that are crowded tend to have a lower bargaining power and the wage model at entry level, which is holding experience constant tends to end up paying lower minimum wage since supply somehow exceeds demand (Preston, 2018).

The above analysis ushers in the third factor determining different levels of minimum wages under the modern award system. This is experience and qualification. Naturally, the minimum requirement for a job would be that an employee qualifies for the position and one would therefore argue that qualification does not play a role in the determination of minimum wage under the modern award system. However, it is worth noting that some qualifications are subject to experience in a given field. The modern award system under the Fair Work Commission insulates employees from the exploitation of imperfect competition in the labour market that would disadvantage the more professions and occupations with a high supply of labour. The occupations with a higher demand for their labour are however protected nonetheless since organisations offer competitive wages to have their services (Webster, 2017).

Enterprise Agreement Wages Aside from modern award wages, another avenue for determination of wages in Australia is through enterprise agreement. Enterprise agreement refers to the negotiation of wages and working conditions between employers and employees at an enterprise level. The negotiation of an enterprise agreement factors in a number of considerations that include wage rates and other working conditions. This means that whereas the employers and employees either individually or through their representative trade unions are at liberty to enter collective agreements on wages, the agreements must be informed by the Fair Works Act, 2009. This protects vulnerable employees from exploitation. The above analysis indicates that there are two primary avenues of determining wages in Australia. These are the modern award wage system and the enterprise agreement wage system.

As indicated herein, the two systems must adhere to the provisions of Fair Works Act especially in terms of the minimum wages set. The role of the trade unions can therefore be analysed from two perspectives. The first perspective is the upward adjustment of the minimum wage by engaging the Fair Work Commission while the second perspective is bargaining for better pay that improves the living standards of employees with the employers (Oliver, 2018). Contribution to Upward Scaling of Minimum Wage The trade unions play an essential role in agitating for the upscaling of the minimum wage. This is through active engagement with the Fair Works Commission in negotiating for a better annual adjustment of the minimum wage in line with the changing economic times.

The trade unions present a case for the employees including an analysis of the changes in cost of living. To actually influence wages therefore, the unions must ensure that the wages match the effort of the employees by bargaining with the employers as discussed below. Agitation for Better Wages with Employers Trade unions often undertake collective bargaining in cases outside the scope of the Fair Works Commission. Wages that are above the minimum wages set by the commission cannot be subjected to review during their period of applicability and it takes the negotiation by the labour and trade unions to get wage increments and other benefits for their members. One of the most crucial techniques used by the trade unions to influence wages is through controlling supply of labour.

However, this is often a technique applied in the event that diplomacy fails. This has the effect of compelling the employers to pay much higher than they would have should the strike last longer (Oliver, 2016). The Labour Market Forces of Demand and Supply Whereas the Australian wages are not entirely determined by the market forces of supply and demand, the market forces still play a crucial role in determining the real wages. The trade unions agitate for better working conditions including pay increment. On the other hand, the Fair Works Commission determines and adjusts accordingly the minimum wages. However, the real wages are still subject to supply and demand in the labour market. Temporarily adjusts the market equilibrium wage rate upwards (Thornthwaite, 2017).

On the other hand, when supply exceeds demand in the labour market, the employees will be willing to take wages below the market equilibrium wage. Should this disequilibrium be sustained for a while, the equilibrium wage will shift downwards (Cockfield, et al. This indicates how the labour market works but under perfect competition conditions. The industrial relations act currently known as the Fair Works Act, 2009 sets in to mitigate upon the effects of excess labour supply that would lead to wages way below the market equilibrium. However, it is not easy to measure the effectiveness of trade unions in determining wages since there’s a high likelihood that the effect is either quite negligible or that there is no effect at all (Bishop & Cassidy, 2017).

This is because trade unions have existed for the longest time and there is no way of telling the effect of the labour market without the trade unions. In practice therefore, there is a possibility that wages are determined by changing economic phenomena such as inflation but since there is no data to conduct a comparative analysis, it is nearly impossible to argue against the effectiveness of trade unions in determining wages in Australia. Trade unions have nonetheless been quite instrumental in improving the working terms of the employees and ensuring that employers do not just offer the minimum wages. As to the effectiveness of determining the wages, the trade unions have influence but the influence cannot be quantified (Isaac, 2018).  Decentralised pay setting: A study of the outcomes of collective bargaining reform in the civil service in Australia, Sweden and the UK.