The Working Poor

A New Class of Australian

Until relatively recently to be in paid work but poor used to be a contradiction in Australia. In the 1970s, the Henderson poverty inquiry found that less than two per cent of families with an adult in full-time employment could be described as poor. Rather, poverty was mainly a problem for those who could not get waged work. Since the 1990s, however, having employment is no longer a guarantee of staying out of poverty. The phenomenon of the ’working poor’ refers to the situation where households fall below a defined poverty line even when family members are in paid employment (Page 73).

ACOSS stated that some 365,000 Australians were living in ’working poor’ households in 2000. These are families and single people whose main source of income is wages and salaries but whose incomes are below the poverty line, using the before-housing half average income poverty line. Although this represented just 3.2 per cent of people living in such wage-earning households, it represented 15 per cent of all people living in poor households (Page 73).

Worsening wage inequality is a major contributor to the widening social divisions in society. This problem has been exacerbated by the increasing numbers of people unable to secure full time permanent work and forced to take casual and part time jobs. A Smith Family study showed that the risk of poverty for those working either full-time or part-time increased slightly over the decade 1990-2000. While 10.7 per cent of all Australians working part-time were in poverty in 1990, by 2000 this had increased to 11.7 per cent. For wage and salary earning families there was a marginal increase in the risk of being in poverty in all four earnings category (namely, one part-time earner, one full-time earner, two earners with at least one part time, and two full-time or three earners) over the corresponding decade.56 Another study commissioned by the Smith Family found that one in five poor Australians live in a family where wages and salaries are the main source of income (Page 74).

Severely limited opportunities are often part of the life experiences of low wage working poor individuals and their families. A lack of financial resources often has adverse flow-on effects for workers and their families. A lack of money can lead to reduced access to preventive health and other services; reduced educational opportunities for their children and a disincentive for them to participate in postsecondary education; and a reduced ability to participate in social activities and in the wider society generally. Lack of financial resources also reduces a worker’s asset base with more likelihood that their financial difficulties will persist into old age (Page 74).

In 1981-82, one in ten low-paid adult employees lived in poverty, as defined by the Henderson poverty line this had increased to one in five by the mid-1990s. The growth in poverty among those in full-year, full-time work appears to have risen significantly, with a particular increase among single person households. While the unemployed as a group are still more likely to live in poor families than even low paid employees, employment seems to be becoming a much less effective safeguard against poverty than in the past (Page 75).

The current system of enterprise bargaining severely disadvantages low-paid workers (Page 75).

Life for the low paid

The Committee received a substantial amount of evidence during the inquiry from many individuals in low wage employment. The personal experiences of these people provided a very valuable insight for the Committee about the difficulties faced in making ends meet and providing for themselves and their families. Some of these individual case studies are provided in the box below (Page 75).

This evidence of these people indicated that for low paid employees:

• finances are always tight;

• expenditure is modest and overwhelmingly on necessities (food, clothing, housing and utilities); and

• there is an ever-present financial stress, which requires the low paid to carry a level of debt to make ends meet and to go without things and activities associated with full and active participation in society (Page 76).

The Australian Liquor, Hospitality and Miscellaneous Workers Union (LHMU) argued that the low-wage labour market has emerged through the intersection of two processes, namely:

• the precarious organisation of much service work, with short and inadequate hours, casual work, ’casualised’ part-time work, short job tenure, contracting and undervalued, insecure employment; and

• the restructuring of the industrial framework to benefit enterprise and ’individual’ bargaining over industry standards, with a diminished ’safety net’ of low wages (Page 79).

The LHMU added that the low-paid labour market is characterised by the interlocking dynamics of low pay and low hourly rates of pay and fragmented work experiences that provide inadequate, insecure levels of employment. In the low-paid labour market, many workers who may receive reasonable hourly rates of pay are nonetheless unable to secure adequate weekly or yearly work to constitute a liveable wage. The union noted that the consequences of an entrenched low-paid labour market “go beyond employment. These consequences include poverty, inequality and disadvantage” (page 79).

As discussed in chapter 3, poverty is increasingly associated with low pay. The LHMU stated that, in fact, the low-paid and the jobless poor are often the same people at different stages in their lives, ’churning’ through a series of poorly paid jobs and spells of unemployment. In addition, thousands of poor individuals, including children, rely on the precarious incomes of low-paid workers (Page 79).

In order to raise minimum wages the LHMU argued that it would be necessary to establish an adequate income benchmark. The LHMU pointed to research conducted by the Social Policy Research Centre which calculated a ’modest but adequate’ benchmark for a range of household types to achieve an adequate standard of living relative to contemporary community standards. Australia has not had a minimum wage calculated on an analysis of household budgets since the Basic Wage, derived from the original Harvester judgement, was abandoned in 1967 (Page 80).

ACOSS argued that the Australian Industrial Relations Commission should establish a new minimum wage benchmark based on a wage level that enables a single full-time worker to live in ’modest comfort’ and to participate in contemporary society. This should be set well above the poverty income level for a single adult (Page 80).

Minimum full-time wages have fallen well behind average wages over the last 20 years, especially in the early years of the shift towards enterprise bargaining, before the present round of ’Living wage’ cases was instituted in 1996. The minimum wage has now fallen to just 50 per cent of average earnings, a reduction of 15 per cent since 1983 (Page 80).

The report recommends that the Australian Industrial Relations Commission establish a new minimum wage benchmark based on a wage level that enables a single full-time worker to achieve an adequate standard of living relative to contemporary community standards (Page 81).

The Committee believes that the establishment of a new minimum wage benchmark is the foundation of a strong award system. It is essential that a new benchmark be established on top of which relativities/margins are calculated (Page 81).

The LHMU also argued that once a fair benchmark for minimum wages is established, the wages of the lowest paid workers should be linked with wages growth in the rest of the labour market. In addition, the LHMU argued that there should be a new commitment to restrain the excessive wages of the highest paid executives and managers “it is unjust that only the wages of the lowest-paid workers are subject to community scrutiny and wage restraint” (Page 81).

Impact of Deregulation In the Labour Market

Submissions noted that for workers who are already in vulnerable labour market circumstances, the impact of labour market deregulation is likely to compound their disadvantage (Page 96).

One study noted that:

For those groups in the labour force whom market forces have always treated favourably, the impact of “deregulation” was minimal. On the other hand, in those industries which have traditionally exposed workers to more adverse conditions and paid lower wages such as agriculture and hospitality [these] workplaces paid very low minimum rates and provided very little in the way of benefits. The critics of labour market “deregulation” have always contended that those who are industrially weak will be the main victims of any changes which weaken external regulation, and this study appears to confirm those fears” (Page 96).

The picture that emerges is of an economy leaving behind the low-skilled and less talented jobseekers, resulting in greater polarisation of income and employment outcomes. Australia is moving towards a core/periphery labour market model with a large group of the workforce permanently excluded from, or only marginally attached, to the labour force and at high risk of experiencing financial hardship. The legislative changes that have occurred since the early 1990s appear to have directly contributed to this situation.

Being Breeched by Centrelink

Evidence shows that the application of breach penalties pushes many Australians into poverty and increases the pressure on charities and welfare agencies. A Salvation Army survey found that of the people who approached them for emergency assistance because they had been breached:

• 84 per cent said they were unable to afford food and/or medication as a result;

• 63 per cent said they were unable to pay gas, electricity, water, and/or phone bills;

• 17 per cent indicated that they had become homeless as a result of being breached; and

• 11 per cent said they resorted to crime to make up for the money lost as a result of being breached (Page 115).

A joint research project undertaken by the BSL, St Vincent de Paul Society and the University of Melbourne on the impact of breaching reported similar findings. The study found that people coped with the reduced income as a result of breaching by cutting basic expenses, relying on welfare organisations, using up savings or borrowing money from family or friends. Most respondents said it was very difficult and frustrating coping with the loss of that money and it was a struggle to pay for essentials such as food and transport (Page 115).

The Committee believes that the current breaching regime and associated penalties remain harsh and inequitable, especially for Newstart and Youth Allowance recipients, and contribute to increasing poverty and financial hardship for many of the most vulnerable people in society, as well as placing an increased burden on the services of welfare agencies (Page 117).

Impact of Education on Poverty

Studies by the Business Council of Australia reveal the long-term impact of leaving school early. The Council found that seven years after leaving school, approximately 7 per cent of those who completed year 12 were unemployed. But for early school leavers, unemployment is a likely prospect: after seven years, 21 per cent of young men who left school in year 9 were unemployed; and 59 per cent of young women who left in year 9 were also unemployed (Page 145).

Achievement in literacy and numeracy are of crucial importance to a young person’s educational outcome and consequently their chance of completion of secondary school, entry to university or to TAFE. In each case those with low attainment experienced strong disadvantage. For example, research found that literacy and numeracy achievement in year 9 has the strongest influence on tertiary entrance performance. Achievement in literacy and numeracy has also been linked to a range of labour market outcomes: Making a successful transition from school to full-time employment, the type of occupation obtained, and earnings are positively related to literacy and numeracy. Conversely, persons with lower literacy and numeracy levels are more likely to be outside the labour force or unemployed, and to experience longer periods of unemployment. The demands in the workplace for, and rewards associated with, increasing levels of literacy and numeracy are likely to continue due to factors such as globalisation, technology change, and changes in employment and work organisation. Literacy and numeracy are also essential for effective communication and participation in society (Page 147).

Indigenous youth, truants and homeless youths, and young people born in Australia are almost twice as likely to leave school early compared to those born outside Australia. Students are also more likely to leave school early if their parents lack tertiary education, if their parents work in semi-skilled or unskilled manual occupations, and if their parents’ incomes are relatively low. Government schools have a higher rate of early school leavers than do non-government schools (Page 151).

The impact of poverty on education starts early and is exhibited in many ways. For example, research indicates that poverty in early childhood can lead to impaired cognitive development. Behavioural difficulties, isolation and exclusion can be found in pre-school age children from low-income families. The Committee received evidence of many factors that contribute to this, ranging from family conflict to financial stress which impacts directly and indirectly on children through their parents’ experiences and behaviour. Young children from low-income families may not have access to educational toys or books. Parents may not read to their children because they do not have the time or the ability. As a result, children from low income families are not prepared for the important transition from home to school and are therefore at risk of having a poor experience from their first encounter of school. This may continue to colour their experience of school for many years (Page 152).

The barriers that many children from low-income families face can be overcome and access to early childhood education can have a significant and lasting impact on outcomes for children. QCOSS stated that ’early schooling can contribute by helping overcome the initial handicaps of poverty or a disadvantaged social or cultural environment. Foundation skills for social and economic participation are developed from early childhood and throughout the school years (Page 153).

Mission Australia put a very strong view in support of early intervention:

Mission Australia is convinced that the development of adequate early intervention and prevention strategies available at the known steps of social and economic disadvantage and at significant life transition points would significantly reduce the impact of poverty for many Australians” (Page 153).

Those children entering school from low income families face considerable barriers. Family dysfunction and social exclusion adversely impact on children in school. Children feel isolated, suffer poor self esteem, exhibit disruptive behaviour and may become truants. Anglicare Victoria noted:

“Kids coming from low-income families are much more likely to be affected by issues such as poor mental or physical health, unsuitable housing and conflictual family relationships. It is really hard to learn if what is going on in your mind is the fight that your parents had that morning; it is really hard to concentrate on what you are meant to be doing at school “ (Page 156).

Reference: Senate Community Affairs References Committee Secretariat, E. Humphery, C. McDonald, P. Short, L. Peake, and I. Zappe. (2004). A hand up not a hand out: Renewing the fight against poverty, Report on poverty and financial hardship. The Senate Community Affairs References Committee Secretariat, Senate Printing Unit, Parliament House, Canberra. Pages 73 – 156.