Minimum wage rise protects low earners from inflation spike

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Editorial

Minimum wage rise protects low earners from inflation spike

The dramatic jump in inflation, which has already hit an annual rate of 5.1 per cent and will likely rise further, is a huge shock to the economy but not all Australians face the same pressures.

Some businesses are certainly struggling because they cannot pass the higher costs of inputs on to their customers, but others – such as energy and agribusinesses – are earning massive profits by jacking up prices. Some workers in multi-year enterprise bargaining deals are losing out, but others in hot demand will get huge pay rises.

Inevitably there will be winners and losers. But the Herald believes that the Fair Work Commission has made the right call by its decision on Wednesday to protect the most vulnerable workers from an excessive drop in the buying power of their wages.

The FWC, in its minimum wage case decision on Wednesday, awarded a pay rise of 5.2 per cent to 180,000 of the lowest-paid workers, lifting their wage to $21.38 an hour and $812.60 a week.

About 3 million other workers, whose wages are linked to the minimum wage via the awards system, will receive rises of at least 4.6 per cent.

The decision will help thousands of households pay their energy bills, put food on the table and keep their heads above water.

Prime Minister Anthony Albanese, who promised during the election campaign to lobby FWC for a big rise this year, says he is “delighted” with the decision.

Australia’s lowest-paid workers deserved this pay rise and the predictable response from some sections of the business community does not stand up to scrutiny.

There is certainly room to question the specific calculations behind the decision. Businesses said, for example, that workers did not need such a big pay rise because they had received the $250 “cost-of-living” payment in the March budget.

Yet the current state of the economy undercuts the classic argument against raising minimum wages. Usually, businesses argue that if they are forced to pay higher wages, they will have to cut staff and unemployment will rise.

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But this is not a great concern at the moment because unemployment has fallen to a historic low of 3.9 per cent and businesses are desperate to find staff.

Moreover, as the FWC pointed out in its decision, companies – especially larger ones – are making strong profits, and they can afford to share them with workers.

Just to be sure, the FWC has issued an unusually complex decision which sets out to protect certain sectors, such as hospitality and travel, that are still struggling from the impacts of the pandemic. For them, the pay rise will be delayed until October.

But there is still a hidden danger in the big increase in the minimum wage because it is likely to encourage wage rises across the board and perhaps push up prices further.

When lower-paid workers are given a pay rise, higher paid workers with more bargaining power want the same or more. Businesses will try to pass on their higher costs.

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The Reserve Bank of Australia, which has the job of bringing inflation back down, will be more likely to raise interest rates as a result of the FWC decision.

The pain will only grow more intense. In a rare television interview on Tuesday, RBA governor Philip Lowe warned inflation could hit 7 per cent and he wants to raise official interest rates to at least 2.5 per cent compared with the current rate of 0.85 per cent.

The inflation shock is unavoidable and difficult times are ahead but at least the FWC has now given the most vulnerable some much-needed protection.

Bevan Shields sends an exclusive newsletter to subscribers each week. Sign up to receive his Note from the Editor.

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