Minimum wage rise leaves workers behind

On July 8, the Australian Fair Pay Commission (AFPC) granted a pay rise of $21.66 per week to around 1.3 million workers earning the standard federal minimum wage. This 4.15% rise translates into an hourly increase of 57 cents. Last July, the minimum wage was increased by only $10.26.

The rise will take effect from October 1, when workers earning the minimum wage will receive $543.78 per week. Workers in the drought–affected agricultural sector whose 2007 increase was deferred will receive both the 2007 and 2008 increases.

The 2008 increase almost compensates for inflation as measured by the consumer price index, which rose by 4.2% in the first quarter of this year. However, the real inflation rate faced by low-income families has been higher — around 6% according to some calculations — because they have to spend a greater proportion of their income on essentials such as fuel, food and accommodation. These items have risen by more than the CPI figure.

Despite the minimum wage increase being inadequate, it brought cries of indignation from employer groups. The Australian Industry Group said the rise was "unhelpful" and the Australian Chamber of Commerce and Industry described it as "economically risky". The ACCI suggested that the AFPC had not properly accounted for the impact on businesses of increased fuel costs and interest rates.

John Hart, the chief executive of Restaurant and Catering Australia, said his organisation was "absolutely flabbergasted" and predicted a $1.50 increase in the price of a main meal. Other employer organisations claimed that the increase will buoy unions' fight against the 2.5-3% limits on wage increases being set by employers, including state governments. The Master Builders Association's legal counsel, Richard Calver, complained: "It sets the tone for bargaining. It has a large psychological effect."

Mainstream business economists played down the likely impact of the wage decision on businesses, however, arguing either that it can largely be funded out of booming corporate profits or that it applies to only 1.3 million of the country's 10 million workers. Some economists noted that the looming slowdown in economic growth will tend to "discipline" claims for wage increases.

The National Australia Bank's chief markets economist, Rob Henderson, pointed out that average wages growth via enterprise bargaining has already fallen to 3.7% (from 4.2% in mid-2007) and that the latest minimum wage rise "doesn't do anything other than maintain their real living standards".

Although the Australian Council of Trade Unions called for a $26 per week increase in the minimum wage, it said the AFPC decision was better than expected. The ACTU noted, however, that inflation will continue to strip away real wage gains for many workers while the straitjacket imposed by the Work Choices laws remains.

Leaders of trade unions covering low-paid workers were more critical. The Liquor, Hospitality and Miscellaneous Union national secretary, Louise Tarrant, said the rise is disappointing and will not compensate for the rising cost of living.

Some commentators claim that the combination of the July 1 tax cuts and the minimum wage increase will make low-paid workers better off. This assessment ignores the fact that the recent tax cuts merely began to compensate for past tax increases due to "bracket creep" and that CPI figures understate real cost of living increases for the lowest paid.

To cover the real cost of living increases for low-income workers, the minimum wage needed to be increased by 6%, or $31 per week. Such an increase would have been less than a third of the 18.9% wage increase that Prime Minister Kevin Rudd is proposing to pay senior public servants.