Daily Bulletin


News

  • Written by Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of Sydney
The Conversation

The Fair Work Commission has announced a 3% hike in the national Minimum Wage, effective July 1 – taking it to A$19.49 per hour, or $740.80 per week.

The increase will apply to over one-fifth of Australian employees: not just those working for the absolute minimum, but also those working under award-determined wages that are set in relation to that minimum.

This year’s increase is higher than inflation, and higher than wage increases on offer in non-award jobs, but it is lower than the 3.5% increase that the Commission granted last year. And despite appearances, it’s inadequate to meet both the needs of the economy and low-wage workers.

In explaining its decision to slow down wage growth for the lowest-paid Australians, the Commission argued the recent slowdown in economic growth (raising the spectre of Australia’s first recession in 28 years) necessitated extra caution – an argument that could, of course, be turned on its head.

A weak economy cuts two ways

The weakest component of economic growth over the last year has been retail sales – which, when seasonally adjusted, were actually weaker in volume terms in the three months to March than in the three months to December.

Consumer spending accounts for more than half of gross domestic product, and nothing boosts consumer spending more directly than higher wages. So if the Commission had been truly concerned about weak GDP growth, it could be argued that it ought to have erred on the side of ambition for wages rather than caution.

Another issue raised by the Commission in justifying a 3% rather than a 3.5% increase is also unconvincing. It pointed to the benefits of the tax offsets of up to $1080 promised by the Coalition. But for low earners on less than $37,000 per year they are worth only $255 – just $4.90 per week.

Tax offsets barely benefit low wage workers

Workers on even less, up to $20,000 (as are many on the minimum wage workers who face inadequate hours as well as low rates), will get no benefit whatsoever from the tax offsets. For these people, the Fair Work Commission was wrong to conclude the tax changes were a reason to slow increases.

Finally, the Commission suggested the recent decline in inflation (symptomatic of a weak economic climate) also justified a smaller increase.

Certainly it is true that this 3% wage increase is significantly higher than the current inflation rate of 1.3%. And in March, the quarterly rate came in at zero, meaning there was no net increase in prices at all.

And low inflation also cuts two ways

Inflation has indeed languished well below the Reserve Bank’s 2% to 3% target for years now, and weak wages are a key reason why.

The Commission faces a chicken-and-egg problem: if wage increases are restrained purely because of low inflation, they will ensure low inflation continues and create the conditions for wages and prices to chase each other down in the future, with a recession the likely result.

In one respect, the Commission’s judgement was assertive and convincing. It noted that its last two increases (3% in 2017 and 3.5% in 2018) both exceeded inflation, and yet did not have any “adverse employment or other effects” – contrary to the scaremongering of employer lobbyists, who predictably warn each year that the economic sky will fall if real wages go up.

Read more: The five not-so-easy steps that would push wage growth higher

Indeed, there is growing consensus both in Australia and overseas that minimum wage increases do not “destroy” jobs. Stronger purchasing power helps offset other sources of weakness in the economy, including very weak business investment.

Despite the Commission’s decision to scale back last year’s wage increase, the 3% will nevertheless support badly needed wage growth. Since 2013, wages have been growing at their slowest sustained pace since the end of the Second World War. Despite seemingly tight labour market conditions, there’s no sign of a recovery.

It could have been bigger

In fact, increases such as the one we have just been granted are one of the only things preventing wage growth from decelerating even further. My research suggests that wage growth for workers not covered by awards has been creeping along at less than 2% per year.

Waiting for “market forces” to reverse recent record weakness in wage growth hasn’t worked. Nothing does more to create sustainable economic momentum than strong, sustained increases in the minimum wage. The Fair Work Commission is helping, but it could have been more ambitious.

Authors: Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of Sydney

Read more http://theconversation.com/weve-been-given-a-pay-rise-were-it-not-for-concern-about-the-economy-it-would-have-been-bigger-118053

Writers Wanted

NZ election 2020: 5 experts on the final debate and the campaign's winners and losers ahead of the big decision

arrow_forward

Meet North Queensland First, the party that wants to kill crocs and form a new state

arrow_forward

3 Ways to Keep Your Business Safe with Roller Shutters

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Business News

3 Ways to Keep Your Business Safe with Roller Shutters

If you operate your business in a neighbourhood or city that is not known for being a safe environment, it is not surprising if you often worry about the safety of your business establishments o...

News Co - avatar News Co

Expert Tips on How to Create a Digital Product to Sell on Your Blog

As the managing director of a growing talent agency, I use the company blog to not only promote my business but as a way to establish ourselves as an authority in our industry. You see, blogs a...

Adam Jacobs - avatar Adam Jacobs

How to Find A company with Tijuana manufacturing

If you have decided to launch a business in Tijuana, there is a need to know about the manufacturing companies. The decision to choose a manufacturing company is not so easy as it looks.   The rig...

News Company - avatar News Company



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion