As we gear up for the annual fight over the minimum wage it was nice to hear the governor of the Reserve Bank last week come out in defence of low-paid workers getting a pay rise.
Business groups and conservative media always seek to spread fear that pay rises for the low paid will cause an outbreak of inflation. So it was good to have someone at the highest level push back against such tosh.
In case you missed it, the RBA governor, Michele Bullock, was asked a leading question about the impact of a 23% wage rise for aged care workers on inflation.
“I don’t think anyone would begrudge aged care workers a rise,” she replied. “They have been historically underpaid for the work they do. It’s a very important job and there are shortages in those industries. So I think it’s a very worthy pay rise.”
She then added: “I don’t think it will make a measurable difference really to what we’re forecasting.”
Hurrah! Some sense (and empathy) at last!
And given the latest inflation figures out yesterday showed that inflation remains at manageable levels despite the surprising fall in unemployment in February, we should continue to be joyful.
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Over the year to February inflation rose 3.4%, and if prices continue to rise as they have over the past six months annual inflation will be well below 3%.
But of course this will not stop calls that we need to worry about wages because the annual cries against minimum wage rises have once again begun.
There’s always a lot of misguided fear about the minimum wage.
For example, is it commonly asserted that Australia’s minimum wage is among the highest in the world (and that this is bad). But Australians are generally well paid compared with most other nations and, as a result, a higher wage is needed to survive here than in other, lower-paid, countries.
The best way to compare minimum wages across countries is to compare how much they are relative to median earnings in that country. On this score, Australia’s minimum wage is decidedly average:
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This week the ACTU announced it would seek a minimum-and-award-wage rise this year of 5%. This is higher than inflation because (and please speak these words like a mantra) wages are meant to rise faster than inflation!
And we know over the past three years the prices of essential items have risen faster than other prices and this always hurts low-income households the most:
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But rather than acknowledge that the poorest workers have done it tough, the call was greeted with claims that “Unions’ 5pc wage claim will keep interest rates high: business”.
According to the head of the Australian Chamber of Commerce and Industry, Andrew McKellar, a 5% rise is “suggesting that inflation will continue to remain higher for longer”.
The only problem here is that there is no significant connection between the minimum and award wages and inflation.
Jim Stanford and I at the Centre for Future Work have looked at the relationship between minimum wage rises and inflation and found it rather lacking.
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We also noted this last year, and the Fair Work Commission decided to factcheck us and found that, if anything, we had overestimated the (negligible) impact.
Last year the FWC increased the statutory minimum wage by 8.6%. This was a very significant increase but only about 140,000 workers are actually on this “minimum wage”.
The about 2.6 million workers on federal awards only received a 5.75% increase.
This was nice, to be sure, but it did little to recover the lost value of their wage.
Even after last year’s increase, the award wage was still 2% lower in real terms than it had been in 2020. The ACTU proposal for a 5% increase would only get the award wage back to where it was in 2020.
And yet McKellar thinks that last year the FWC made an error because these low-paid workers have “had overcompensation in the past two years”.
The Australian Chamber of Commerce and Industry in its generosity thinks the minimum wage and awards should only go up by 2% this year – that would get them back to where they were in 2018:
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McKellar argues absurdly that this won’t be a real wage cut because these workers also get the stage-three tax cuts.
Tax cuts, however, are not wage rises, and the RBA has stated the cuts won’t affect inflationary forecasts. Also, I don’t recall employer groups suggesting the old stage-three cuts should be taken into account when considering hikes to executive pay.
But it also ignores that some two-thirds of workers on awards are part-time and they account for a major share of the roughly 1.5 million workers who will receive no tax cut at all from the new stage three, because they earn less than the tax-free threshold (including the low income tax offset, which raises the effective tax-free threshold to $21,884, or $420 a week).
A 5% rise in award wages and the minimum wage is, if anything, pretty modest, and it definitely cannot be argued it will set fire to inflation or cause interest rates to stay high.
The chamber of commerce and other employer groups never want minimum or award wages to rise by more than inflation. It is about time they were honest and admit they are arguing for the poorest workers in Australia to not just stay poor but become poorer.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
