Australia has a serious wage problem. Over the past decade wages for all but the top 20% of income earners have flat-lined.
This is part of the longer-term problem concerning productivity and wages identified by groups like the OECD – namely, workers have not shared in productivity gains, with “labour market flexibility” experiments mostly to blame.
So the decision of the Fair Work Commission – the guardian of what’s left of Australia’s historical approach to ensuring decent pay – to increase the minimum wage by 2.5% is significant.
The commission reviews the minimum wage annually. Last year it granted a 1.7% increase – the lowest in 12 years. This year’s 2.5% is less than the 3.5% wanted by unions, but more than the 1.1% sought by employer groups.
The increase directly affects only about a fifth of Australian employees. It will, however, have indirect benefit for workers earning more, and aid economic renewal.
Higher wages are good for employment
The 2.5% increase is more than what Treasury and the Reserve Bank forecast for average wages over the coming year, but also something these conservative institutions would welcome.
Sluggish wage growth does not just result in greater wage inequality. It effectively retards demand, a key determinant of employment.
Unemployment and underemployment have affected about one Australian worker in eight (12-13%) for more a decade. Only expansive monetary, fiscal and wages policy offer any hope of boosting employment.
Unemployment and underemployment in AustraliaABS Labour Force
Most immediately, the decision will benefit up to 200,000 workers paid the national minimum wage rate (which will increase to $20.33 an hour) and about 2.2 million employees that rely on awards whose conditions reflect the minimum conditions (that is, they aren’t covered by an enterprise agreement or other contract that guarantees them more).
The commission has ruled the increases won’t apply to most retail workers before September, and for those in aviation, tourism, fitness and a few retail sectors before November.
With these exceptions, the flow-on will be immediate for workers employed by reputable employers subject to union scrutiny. It may be slower in more informal enterprises where award compliance is more variable.
There will be flow-on affects to other workers, though less than in the past.
Up to the early 1990s, movements in one part of the award system rippled through to other job classifications in a very direct way. This has not been the case since workers – especially those on middle and upper incomes – have been required to bargain at enterprise level for wages.
Such “bargaining”, however, has been supressed for more than a decade, due to:
chronic and significant unemployment and underemployment
the crippling of union bargaining capacity through restraints on collective industrial action entrenched in the Fair Work Act
the imposition of legislated caps on wage increases for public-sector workers since the early 2010s, which have also helped suppress private-sector wages.