Sun Mar 24

Don’t let real wages go backwards for the low paid

Written by: Michelle Grattan, Professorial Fellow, University of Canberra

The Albanese government will tell the Fair Work Commission it should ensure the real wages of low paid workers do not go backwards.

In its submission to the Annual Wage Review, the government stresses the July 1 tax cut should be on top of the wage increase for these workers, rather than a substitute for it.

The national minimum wage at present is just over $45,900 a year. This is about 55% of median full-time earnings.

The submission, to be handed to the commission on Thursday, says: “There is no sign of a wage-price spiral developing in Australia and medium-term inflation expectations are well anchored.

"Despite increases in nominal wages, and the return of annual real wages growth, the real value of award wages has been eroded in recent years given the global inflationary environment.

"Low paid workers and their families are particularly affected by cost-of-living pressures because they typically do not have savings to draw on to cover rising costs.”

The government’s position is in line with what it has put in its last two submissions to the commission.

The submission says inflation is expected to moderate further, which would improve real wages and ease some pressure on households.

“However, the current economic environment is challenging, with many households experiencing cost of living pressures.”

The tax cuts are “designed to be in addition to any increase in award and minimum wages” granted by the review.

Gender to form part of the national wage case

On the gender pay gap, the submission argues: “As women are disproportionately represented in low-paid and award-reliant jobs, increases in the minimum wage are likely to decrease the gender pay gap and increase the incentive to enter the workforce or work more hours.” This might increase the female participation rate.

The government’s December 2022 amendments to the Fair Work Act embed the principle of gender equality in the commission’s decision-making processes.

In April the commission will have before it research on gender pay equity it commissioned to inform its decision making processes.

The government has reserved the right to make a further submission when that research is published. The gender pay gap has fallen, and on one measure is currently 12%.

Earlier this month the Fair Work Commission awarded aged care workers a historic “work value” pay rise, worth up to 28%.^[1]

Low wage earners are the government’s priority

The government says it is not suggesting that wages across the board should automatically increase with inflation, or that inflation should be the only consideration in determining wages.

“Over the longer-term, productivity is the key driver of real wage growth,” the submission says.

Annual real wages grew 0.1% through the year to the December quarter. For the first time in more than five years, quarterly real wages grew for three consecutive quarters.

Wages are growing at an annualised average of 4% under Labor, which is nearly double the average over the nine years before.

Last week’s unemployment figure surprised observers, falling to 3.7% in February, from 4.1% in January.

Inflation update due this week

Inflation has fallen to 4.1% through the year to the December quarter. Monthly inflation figures – which can be volatile – will be out on Wednesday.

The government has said that while inflation is still a primary challenge, the balance of risks is shifting to growth, which will be a main emphasis in the May budget.

Treasurer Jim Chalmers said: “While we’ve made welcome progress on inflation and seen a return to real wages growth earlier than forecast, many Australians are still under pressure – particularly low paid workers.”

Employment Minister Tony Burke said the government’s support for low paid workers had been “an essential part of returning to real wage growth”.

“After a decade where keeping wages low was a deliberate design feature this is what it looks like when a government deliberately gets wages moving,” he said.

Minister for Women Katy Gallagher said: “Women are disproportionately represented in low-paid and award reliant jobs, and we don’t want to see them going backwards in their pay.

"Despite the recent improvement in the gender pay gap, there remains a substantial disparity in earnings between men and women and we are committed to continue to work to close this gap.”