Few things are more predictable than the usual business lobby suspects warning that life as we know it will end if wages aren’t suppressed.
Ditto the reaction when the Fair Work Commission (FWC) delivers a bigger wage rise than the last one – even though it’s not by much.
Typical was the Australian Financial Review’s immediate headline: “Minimum wage decision cements case for more rate rises”, with a couple of economists shooting from the lip.
Er, no, it doesn’t. That should be obvious to anyone who actually studied the FWC’s announcement.
The FWC doesn’t want to turn the current rate of wage increases – which have been repeatedly described by the RBA as acceptable, as in keeping with its inflation target – into something that will scare Phil Lowe & Co.
The commission members are very well aware of the pain higher inflation and higher interest rates would cause the people it is trying to help with a sustainable wage increase.
Low impact
Hence the commission spelt out why what sounds like a big wage increase really won’t have much inflationary impact.
Sure, an 8.65 per cent minimum wage increase makes a big headline (“a huge pay increase”, according to the AFR), but the FWC underlined that only about 0.7 per cent of Australian employees are paid the minimum wage and a great many of them are part-timers at that.
It’s a decent percentage but it applies to a relatively small number of pay packets that contain small amounts.
“Because of the negligible proportion of the workforce to which the national minimum wage applies, this outcome will not have discernible macro-economic effects,” said the commission.
The RBA may or may not increase the cash rate again, but if it does, it certainly won’t be because of scary minimum wage increase headlines.
Ignore them.
The modern award minimum wages decision is a different matter, affecting 20.5 per cent of Australian employees, but the commission has again been cautious, explicitly citing the need to avoid entrenching high inflation expectations among the multiple factors it considered before delivering a 5.75 per cent wage rise from July 1.
“We’ll all be rooned,” said Hanrahan and the business lobby, predictably, seizing on a concern about inflationary dangers not evidenced when business is increasing profits and prices.
And here again, the FWC hosed down the usual suspects: “The total wages cost of the modern award-reliant workforce constitutes about 11 per cent of the national ‘wage bill’.
“Wage increases awarded in last year’s Annual Wage Review decision directly contributed less than 10 per cent of the total wages growth in 2022.”
Not a wages breakout
Let’s repeat it: Only 11 per cent of the workforce and less than 10 per cent of wages growth – it’s nothing like a wages breakout.
That is no surprise for anyone who has been paying attention, who actually has an interest in what happens with wages instead of regurgitating cliches.
The last award wages decision was 4.6 per cent and it barely bothered the scorer, so an extra 1.15 per cent is hardly going to ignite a wage-price spiral, especially given the forecasts of a slowing economy and rising unemployment.
Instead of vaguely remembered Economics 101 theory, we have the real world example of what happened to wages last year after the 4.6 per cent rise: Not much.
The September quarter wage price index increase of 1.1 per cent was indeed the highest in a dozen years – but that was not because of the FWC decision.
According to the ABS, 57 per cent of the index rise came from “individual arrangements”, 28 per cent from enterprise agreements and just 15 per cent from awards.
Last year, more than half of Australian jobs had a wage rise of less than 3 per cent. More than two-thirds had less than the FWC’s 4.6 per cent decision.
The fortunate 10 per cent who scored increases of more than 6 per cent had nothing to do with the Fair Work Commission and everything to do with “the market” working, as businesses that could afford to pay to attract and keep workers did so.
So with their “suppress wages to pacify the RBA argument” blown out of the water, you rely on the business lobby to fall back on “it will send businesses broke”.
That is the Darwinian nature of what is meant to happen when labour is scarce and productivity growth is low. The least productive enterprises are meant to fail as the price of scare resources are bid up, freeing up resources for the more productive to grow.
It’s a personal tragedy for the individual business owners, but not for the economy.
If it wasn’t pathetic, it would be funny listening to the business lobby sounding like such socialists when it suits them.
Hit by more tax
And who are the people the business lobby is begrudging a pay rise that still leaves them going backwards in their standard of living?
“The characteristics of employees who rely on modern award minimum wage rates and are directly affected by our decision are significantly different to the workforce as a whole,” noted the commission.
“They mostly work part-time hours, are predominantly female, and almost half are casual employees. They are also much more likely to be low paid.”
These also are the people who will have a higher tax bill this year with the end of the low and middle income tax offset (LMITO). Someone on $48,000 a year will pay $1,500 more tax and get three-fifths of one-quarter of not much from the looming stage-three tax cuts.
And you know what the people who probably will get real money out of stage-three tax cuts ignore? The impact of income tax on the actual take-home of workers.
Keeping it very simple, that 5.75 per cent wage rise for someone on $50,000 a year works out to be only 4.3 per cent after tax.
Nobody will be spending up an inflationary storm with that.
