Minimum wage rise is a welcome small part of the change needed

Contributed by Joe Montero

Anthony Albanese and his government has won some deserved political capital from the 5.2 percent minimum wage increase awarded by the Fair Work Commission. For those at the bottom of the earning pile who have been doing it especially hard, this comes at as an immense relief.

But it will not bring about much of a change. This rise does little to cover the scale of the loss of real wages over the years. In real terms this has not stopped the decline in real wages. In any case, inflation will soon overwhelm any gain made. The Reserve Bank governor, Philip Lowe, on Tuesday night suggested inflation would reach as high as 7 percent by the end of the year, with more rate rises forthcoming.

The graph below shows this to continuing fall in real wages clearly enough.

Source: FWC/ABS 

Those without work and on Jobseeker are already falling further behind, and rather than seeing their payment rise, are facing having payment more difficult to get and keep. The government is talking about tightening the criteria.

Opponents of the wage rise are the usual ones who oppose any rise at any time. They argue that it will increase the costs of business and that this will translate to the loss of jobs. This is true if nothing else changes. Unchecked operations of the market will make sure of it.

Th graph below shows that unit labour costs have been going down and continue to do so even when inflation is on the rise. Future projections don’t indicate any change.

Source: ABS 

This surely a good argument for implementing jobs protection. Major employers should be forbidden by law, to recoup the cost of paying more wages by shedding jobs. A breech should incur a substantial financial penalty. Big business can absorb the cost and should be expected to do so for Australia’s wellbeing.

The exceptions are small businesses struggling to survive. some flexibility is needed here, as well as minimising the effect with government allowances and suitable tax offsets.

There is a myth that Australia is facing a major labour shortage, and therefore, the increased minimum wage, while nothing else is being done, will not cause a loss in jobs. This is not the way it is. The labour shortage is mostly the result of the cut-off of the imported cheap labour force by the pandemic. Foreign workers can not be brought it to work for below standard wages and conditions for now. Few Australian workers are willing to accept becoming the new source of cheap labour.

In part, the national wage case recognised this. It also recognised the growing discontent over the decline in real wages overall. A concession was made. There was no turn around. Wages are still set to continue to fall in value. and Fair Work Australia remains unconcerned about this.

In everyday terms, inflation means mainly the cost of basic necessities. These are cost of having a roof over one’s head, to put food on the table and access to transport. This is what the economists call non-discretionary spending, which means, that which most consumers can’t do without and must pay for whatever the price.

Inflation will hurt those with the lowest income most of all. The only way to protect against this is to impose price rise limits on essentials. This means on rents, mortgages, food, petrol, and public transport.

The effect would be more money to spend on other items, and this would provide a needed boost to the economy. Business would benefit from the larger market. Jobs would be created. The standard of living would rise to make Australia a better country to live in.

The rider is the need to reverse the escalation of the casualisation of work. Otherwise, a large part of the workforce will continue to go home with less in their pockets, no matter what the wage rise is on the books. Hourly wage rates mean little unless there are enough hours, and these are permanent. Making the conversion of proper jobs into casualised jobs illegal, except under very exceptional circumstances, would solve the problem.

None of this will happen unless there is a political will to go down this road.

This week’s minimum wage rise should be welcomed and seen as the first step towards a more comprehensive change. Waiting for the politicians to do it for us won’t do. This is a matter of winning public support for what is necessary.

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