Australia Institute refutes claims that bigger wage hikes will impact inflationary pressures
Minimum and award wages in Australia need to go up by five to nine per cent this year to restore low-paid workers' real buying power back to pre-pandemic levels, according to a new report.
Research released by the Centre for Future Work at The Australia Institute said the National Minimum Wage and award wages need to grow from 5.8% to 9.2%.
This is needed to offset the recent inflation and return to the long-run trend level of improvements in real wages for workers with low incomes amid the rising costs of living, according to the analysis.
"Australia's lowest-paid workers have been hardest hit by inflation over the past three years," said Greg Jericho, Chief Economist at The Australia Institute's Centre for Future Work, in a statement.
"It's vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation but also returns the value to the real trend of before the pandemic."
The Australian government last year implemented a 3.75% increase in the minimum and award wages.
According to the analysis, last year's hike offset the inflation of the previous year but still left those on Modern Awards with real earnings below what they were in 2020.
"To return to the trend level, an increase of 9.2% in award wages is required," the report read. "This would fully undo the damage of the past three years and also reset the parity of Modern Award wages increases with that of the smaller group of workers on the National Minimum Wage."
The centre's call for a bigger minimum and award wage hikes comes amid arguments from business groups that bigger increases will cause a return of inflationary pressures.
"This report, drawing on and updating our 2024 research, clearly rebuts these claims," the analysis read.
It pointed out that Australia's inflation fell by a combined 4.5 percentage points over the past two years despite the minimum wage increases being above inflation.
It also noted that even with historically large minimum and award wage rises, profit margins across the economy remained higher than pre-pandemic norms.
"Given this, we argue the impact on prices of even a substantial lift in minimum and award wages could be fully offset by a very small reduction in profits," the report read.
For a 9.2% increase in award wages, the report said this can still be fully offset without any impact on prices by a 1.8% reduction in corporate profits, keeping them above historical levels.
"Such a reduction would still leave the share of GDP going to profits at higher levels than before the pandemic, while assisting the recovery of the lost living standards of Australia's lowest-paid workers."
