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Minimum wage increases in Australia

Less than a month after his election, Anthony Albanese makes a major decision: to increase the minimum wage by 5.2%. This increase will take effect on July 1 and represents $40 per week.

Even though the economic situation of Australia is relatively good, the population faces a large number of problems including:

  • General inflation estimated at 5.1%. The Reserve Bank of Australia suggests that it could reach 7% by the end of the year.
  • An increase in the cost of housing for purchase and rental.
  • Interest rates are on the rise.

Increase in the minimum wage: decision of the Fair Work Commission

Wages

The Fair Work Commission’s expert panel, which reviews the minimum wage every year, announced a 5.2% increase, so the hourly rate will rise from $20.33 to $21.38. This decision is based on the Statistical Report – Annual Salary Review 2021-22.

Inflation continues to output wage growth

The economic factors taken into account by the expert group are as follows:

  • actual wages have fallen by around 2.5% over the past two years
  • economic growth is strong and looks set to continue
  • employment and vacancies increase
  • unemployment and underemployment are down
  • productivity has returned to steady growth of 1 to 2% per year
  • profits have increased by 25% over the past year.
  • Although it is difficult to make precise estimates, the increase in the minimum wage will affect around 2% of Australian workers. The hardest hit sectors will be retail and hospitality.

Bonuses

The Annual Wage Review also decides pay rates for those receiving bonuses. This affects approximately 23% of Australian employees (19% of men, 27% of women). The panel awarded these workers a bonus increase of 4.6%.

This measure will help workers in elder care, disability care, and other forms of non-government provided (but primarily government funded) care.

Retirement or superannuation

From July 1, 2022, minimum employer contributions to pension schemes will be increased to 10.5% (instead of 10%) and must be paid into employee compliance funds, calculated on the basis of ordinary earnings. In addition, the $450 per month eligibility threshold for superannuation payment is removed, meaning additional superannuation obligations for low-income employees in the next fiscal year.

Feedback

Increase in the minimum wage: the reactions

Unions had called for a 5.5% increase in the national minimum, while employers’ groups had suggested more modest increases of around 2.5%.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar warned the move posed a “risk to the economy” that would add $7.9 billion to costs for employers.

To which the Prime Minister said:

If you’re on minimum wage, you also spend every dollar you have. Every dollar you receive will go back into the circulating economy. He will not go to savings, nor on vacation abroad. It will be used to put bread on the table and feed the children of people who earn minimum wage. That’s what it’s about.

The reality for most employers is that given the staffing shortages in most sectors, the actual increase in minimum wages may have little impact, as employers pay far more than minimum wages to attract and retain staff at present.

Increase in the minimum wage: Beware of exceptions!

The Commission also decided that the increase would be postponed until October 1 for the aviation, tourism and hospitality sectors due to “exceptional circumstances”, including their slower recovery from the Covid recession.

Increase in the minimum wage: impacts

Increase in the minimum wage: indirect impacts

For the majority of workers, around 35% of whom are covered by a company bargaining agreement and 38% by overpayments or individual contracts, the impact of the ruling will be indirect, although potentially significant.

Wage negotiations involve a combination of market forces and institutional forces.

The lower limit of wages is set by the social security system, unemployment benefits (very different from the French system), old age pensions, etc… The upper limit is set by the profitability of the most successful companies.

Institutional forces such as employers’ strategy, trade unions, labor law and customary notions of “remuneration”, as well as the level of supply and demand for workers with particular skills determine the final outcome to be achieved. within these upper and lower limits.

This is where the panel’s decision is significant. It implicitly challenges the restrictions imposed on wage increases by federal and state governments over the past decade.

Protection of a principle

The panel’s decision follows a long-standing tenet of Australian wage policy, applied at least since the 1990s, when company bargaining became the main basis for wage increases.

According to this principle, some workers do not have and will never have the ability to negotiate effectively with their employers. They must therefore be protected.

Raising the minimum wage: a half-hearted decision?

Most Australians are concerned about the cost of living. After more than a decade of stagnant wages, Mr. Albanese’s election campaign has recognized this and pushed for it.

When Scott Morrison called Albanese a freewheeler for his support for a $40-a-week raise for the lowest wages, he misunderstood the public’s mood.

This decision is a welcome contribution to its role of protecting the lowest wages. It may well help move Australia onto a higher but sustainable wage growth trajectory. To be continued…

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